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Kicking the Hornet’s Nest
The Complete Writings, Emails, and Forum Posts of Satoshi Nakamoto, the Founder of Bitcoin and Cryptocurrency – Third Edition

Mill Hill Books

Kicking the Hornet’s Nest: The Complete Writings, Emails, and Forum Posts of Satoshi Nakamoto, the Founder of Bitcoin and Cryptocurrency – Third Edition

Copyright © 2024 Mill Hill Books. All rights reserved.

ISBN 978-1-304-04-053-4

It would have been nice to get this attention in any other context. WikiLeaks has kicked the hornet's nest, and the swarm is headed towards us.

• Satoshi Nakamoto, December 11, 2010, 23:39:16 UTC

This statement was in reference to an article by PC World. It can be accessed at https://www.pcworld.com/article/213230/could_wikileaks_scandal_lead_to_new_virtual_currency.html.

Two days later, Satoshi Nakamoto disappeared from making further public postings.

Sources:
• https://satoshi.nakamotoinstitute.org - This was the main resource for this book. Their work and organization is priceless.
• https://BitcoinTalk.org/ - The forum set up by Satoshi.
• https://gwern.net/doc/bitcoin/2008-nakamoto – Wei Dai personal emails.
• http://www.metzdowd.com/pipermail/cryptography - The Cryptography Mailing List was used by the group generally known as “cypherpunks.”
• https://plan99.net/~mike - Personal emails to/from Mike Hearn, publicly shared on the Internet at this site.
• https://en.bitcoin.it/wiki/Source:Trammell/Nakamoto_emails - Personal emails to/from Dustin Trammell (aka Druid) from January 2009. Also, emails from Trammell’s website: https://www.dustintrammell.com/s/Satoshi_Nakamoto.zip
• https://online.wsj.com/public/resources/documents/finneynakamotoemails.pdf - Personal emails to/from Hal Finney, publicly shared on this Wall Street Journal site.
• https://www.bitcoin.com/satoshi-archive/emails/jon-matonis/1/ - Jon Matonis personal email.
• https://www.coindesk.com/satoshi-nakamoto-hal-finney-emails - “Newly discovered emails” revealed in November, 2020, in a CoinDesk article written by Michael Kapilkov.
• https://bitcoinmagazine.com/technical/bitcoin-adam-backs-complete-emails-satoshi-nakamoto which references the COPA case file dump at https://www.dropbox.com/scl/fo/4y3gdele4foy15006z8ch/h?rlkey=scs42wew1o3vwfv0nduhc43dm&e=1&dl=0 – Personal emails to/from Adam Back previously unseen publicly prior to the February 2024 COPA case.
• https://mmalmi.github.io/satoshi/ - Personal emails to/from Martii Malmi. These were released publicly by Malmi in February of 2024 as part of the COPA case.

Notes on the Third Edition

One might ask, “Why is there a third edition of Satoshi’s words?” The simple answer is that new, or rather, previously unseen Satoshi writings have emerged publicly.

The “Hal Finney emails” cited above by CoinDesk in November of 2020 prompted version two of “Kicking.”

Then, in February of 2024, the “COPA trial” began with the possible identity of Satoshi Nakamoto at the core of the case. That trial called in individuals who had made early electronic contact with Satoshi to offer witness statements. As a result, new, previously private “Satoshi emails” became public. Hence, here is the Third Edition of “Kicking.”

I think that a chronological record of Satoshi’s writings is interesting, useful, and important. To that end, I’m committed to keeping this book freely offered and in several formats. See all the links at @crrdlx/satoshi to download a copy.

• crrdlx, editor

February 24, 2024
@crrdlx/satoshi

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This book is available in print at https://lulu.com

Digital versions (pdf, txt) can be obtained for free at @crrdlx/satoshi Visit this site for all links, digital and print.
Notes from the Editor (written for the First Edition)

Ten years ago, on January 3, 2009, Bitcoin went live. That day, Satoshi Nakamoto generated the first Bitcoin block, which has since come to be known as the “Genesis block.” In the Genesis block, Satoshi encoded the message, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” This was likely to both timestamp the block to the outside world (using the title of the article on the front page of the London’s daily The Times), but, more importantly, to offer a comment. The comment gave insight that was both outward toward the financial system and inward toward Satoshi himself. Any article title could have been chosen as a timestamp. This one was clearly meant to convey a message. Satoshi sent the message that he does not favor banks. More likely, he does not like the fractional reserve banking system and the endless creation of fiat currency that coincides with fractional reserve banking. 2008 and 2009, when Bitcoin was born, were the years of rampant “cash injections,” “stimulus packages,” “quantitative easing,” and “too-big-to-fail” bank bailouts. Bitcoin, with its hard-coded 21 million coin limit, would solve the fiat addiction. Infinite paper money would be replaced by finite numbers written in code.

What’s more, Satoshi fired a shot across the bow of the financial powers-that-be. Bankers, politicians, and the manipulators of the money supply have not been happy about Bitcoin and cryptocurrency. Ten years in, the powers seem to be warming to the idea a bit—or, at least, they’re beginning to realize the use-cases and the inevitability of crypto. Still, their reluctant “embrace” is very slow and very cautious. I imagine one of the most threatening things to the powerful is to suggest that power be taken from them and then dispersed to the people themselves. Putting power into the hands of the people means saying, “You know what? We the people really don’t need you after all. Have a nice day.” Bitcoin suggests this very thing financially—it gives the power, freedom, and responsibility to the individual. As a boy, my brother and I would occasionally come upon a hornet’s nest while playing in the woods. When we did, being boys, there was really nothing else to do but to throw a rock or stick at it, or kick it. Kicking a hornet’s nest isn’t rational, but just too tempting and just too much fun not to. And when you do it, you do it fast and then you run like hell!

Since January 2009, some people have placed an almost religious status onto Satoshi and his writings (the term “Genesis block” serves an example). I do not subscribe to this position, and I discourage anyone from doing so. Satoshi is, or was, a man, or a woman, or a group—as fallible and as human as us all. And, I’m sure he holds just as many hang-ups and weaknesses as anyone else. Applying demi-god status to a mortal man is unfair to that person, and sets one’s self up for disappointment. And yet, Satoshi was very clever. So, I do think his writings, interactions, and thought processes are important, revolutionary, and worth documenting. I realize that all of these words are fantastically preserved and organized on websites, particularly at the Satoshi Nakamoto Institute (https://nakamotoinstitute.org/). Still, having a hard copy for reference or referral may be appealing to some. And, I realize other such books exist already. However, they include most, but not all, of Satoshi’s writings and they include excellent commentary as well. This book is distinct in that it has the entirety of Satoshi’s work included, is arranged chronologically rather than topically, and offers almost zero commentary. The goals here were to be complete, to build a chronological chain of Satoshi’s words and thoughts, and to allow Satoshi’s words to speak for themselves free from an editor’s interjections. Thus, this book was assembled.

Following are all of the public writings of Satoshi Nakamoto, the founder of Bitcoin—at least these are all that I could find. They are arranged in chronological order. Many of the writings are very technical. Some are purely code and will read as jibberish to most of us. I debated whether to include these “writings” or not. But, I wished to have a full account of all of Satoshi’s writings, and so, even the code was included. Though unwieldly to read, even they convey a message—Satoshi was focused, businesslike, and pragmatic in his dealings and work. Since many of the writings are in response to others’ comments, and for the sake of revealing the context of Satoshi’s words, there are writings by other people included here as well. However, any non-Satoshi writings are italicized. Satoshi’s writings can be identified by the fact that they are not italicized.

Satoshi’s words are not italized. They look like this.

Words by others are italicized. They look like this.

Compiling these writings was educational to the editor. It seemed to offer insight into Satoshi Nakamoto. Lessons were learnt regarding Satoshi combing through his words, or, at the least, following were my interpretations:

Satoshi is polite. He said “Thanks” or “Thank you” several times. Often, an exclamation point was included for emphasis. And, he apologizes when appropriate.
Satoshi is a good teacher. In the earlier phases especially, he patiently and clearly answers questions one-by-one.
Satoshi is a clear communicator. His English, grammar, and syntax are nearly flawless. Although he does, on occasion, dabble in textese—he throws in a WTF and an AFAIK—nearly all of his communications are in clear, declarative, complete and correct sentences.
Satoshi is a fantastic thinker. He is able to think with beautiful logic. He is able to think abstractly in concepts via analogies (such as the Gambler’s Ruin problem in the whitepaper). His more formal logic is seen in his code, naturally, but it is also witnessed in his writings. For example, in a response to theymos, Satoshi simply states, “The premise is false,” then he explains why. As something of an aside, that statement harkens to Ayn Rand’s Atlas Shrugged, where “check your premises” is an ongoing sub-theme in the novel. For anyone unfamiliar with the book, the phrase does two things. First, it’s a reference to Aristotelian logic of non-contradiction—if two things seem to contradict, they actually don’t, one of them is wrong—check your premises. And secondly, the uber-theme of the novel itself is an indictment of government bailouts very similar to the Chancellor’s brink-of-bailout of January 3, 2009. Atlas Shrugged damns governments and powers which purport to know what’s best and act for the people’s best interest, rather than freeing the people to simply act for themselves. I don’t think Satoshi was thinking Atlas Shrugged when he wrote the premise statement to theymos. I believe he was merely thinking clearly. But, the theme of Atlas Shrugged, and the “theme” of Bitcoin, certainly do seem to coincide with those words.
Satoshi likes to double-space after a sentence is complete. This was the standard taught to typing or keyboarding students up until roughly the year 2000. Stylometry, studying a person’s literary quirks in writing, has been a ripe field for pondering the identity of Satoshi Nakamoto. It may be a stretch, but with few clues, this double-space idiosyncrasy has often been noted in places like /r/Bitcoin on Reddit. There has also been discussion about Satoshi’s tendencies toward British spellings of words, such as cheques for checks, neighbours for neighbors, decentralised or formalised with an s rather than a z, or use of the word “bloody.” Some say these British tendencies were for obfuscation—to fake the world. I personally think there is something to the British influence. His British usage reads very organicly and unforced. I interpret that Satoshi indeed had some British-influenced upbringing (e.g., Britain, or Canada or Australia or a British Caribbean island). Like micro-expressions in facial body language, wording, in organic thought or writing, becomes hard-coded. To not release those tendencies would require constant and extreme discipline. Of course, Satoshi just might well have those qualities and fool me right there! Regarding double-spacing, I tend to believe that the double-spacing may well hint at Satoshi’s age…he most likely learned to type when double-spacing after a period was standard. Revolutionary ideas have often come in history from people in their 20s or early 30s, but in this case, that seems too young. Typing this specific way, given the revolutionary thoughts for Bitcoin, and the technical skill acquired and necessary to create the code, as well as the polish in writing, Satoshi was likely not young when working on Bitcoin. Purely speculating, I would guess that he was likely around 40 when the whitepaper came out in 2008…meaning he was likely born around 1968, give-or-take a few years.
Satoshi is a heads-down programmer. Many of the writings here are mundane coder-talk. They are likely cryptic jibberish to nearly everyone. Satoshi does not fiddle with small-talk or niceties. He consistently remains focused and practical. When wished a happy Christmas by Mike Hearn if he celebrates Christmas, Satoshi makes no response either way. He merely proceeds to the task-at-hand.

Satoshi values privacy. This is witnessed in his words—naturally for a cypherpunk—but also in his focused neglect of including anything personal about himself (or herself), such as the Christmas non-comment. It’s worth noting here that since Satoshi Nakamoto is unknown, Satoshi’s sex is unknown. Satoshi may be a man, woman, or group. However, since サトシ is generally a male’s name in Japan, Satoshi is referred to here using singular, male pronouns.
Satoshi can pack a lot into a few words. His writing style is brief and to-the-point, but not impolite or terse. On the day the whitepaper was revealed, when he writes, “I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party,” he could have almost simply stopped right there.
Satoshi has a practical sense of marketing about him. He understands the importance of a good icon or logo. He understands that slow growth is not necessarily a bad thing. And he gets that there is such a thing as bad publicity (e.g., the WikiLeaks, hornet’s nest comment).
Despite his focused, logical, business-minded tendencies, there seems to me to be a bit of boyishness about him. This is seldom shown, but it is there, revealed in his writings in rare glints. This leads to a final conclusion…
Satoshi is human. When he writes to Mike Hearn on Wed, March 9, 2011, “That’s great news!” the guarded wall that normally shields Satoshi-the-person seems to quaver. It hints at a real person, with emotions, excitement, and an almost childlike glee in what he’s doing, lying somewhere behind the façade of Satoshi Nakamoto. He’s kicking the hornet’s nest himself, and he knows it. And, when just two days before withdrawing from public posts he writes, “That means a lot coming from you, Hal. Thanks.” I hear a deep sigh after sending that comment.

• Editor

January 3, 2019

Satoshi Nakamoto’s PGP Key

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The Bitcoin Whitepaper
Source: https://bitcoin.org/bitcoin.pdf

Bitcoin:
A Peer-to-Peer Electronic Cash System
Satoshi Nakamoto
October 31, 2008
Abstract
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.

1. Introduction
   Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for non-reversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.

What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers. In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.

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1. Transactions
   We define an electronic coin as a chain of digital signatures. Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership.

The problem of course is the payee can't verify that one of the owners did not double-spend the coin. A common solution is to introduce a trusted central authority, or mint, that checks every transaction for double spending. After each transaction, the coin must be returned to the mint to issue a new coin, and only coins issued directly from the mint are trusted not to be double-spent. The problem with this solution is that the fate of the entire money system depends on the company running the mint, with every transaction having to go through them, just like a bank.
We need a way for the payee to know that the previous owners did not sign any earlier transactions. For our purposes, the earliest transaction is the one that counts, so we don't care about later attempts to double-spend. The only way to confirm the absence of a transaction is to be aware of all transactions. In the mint based model, the mint was aware of all transactions and decided which arrived first. To accomplish this without a trusted party, transactions must be publicly announced[1], and we need a system for participants to agree on a single history of the order in which they were received. The payee needs proof that at the time of each transaction, the majority of nodes agreed it was the first received.

1. Timestamp Server
   The solution we propose begins with a timestamp server. A timestamp server works by taking a hash of a block of items to be timestamped and widely publishing the hash, such as in a newspaper or Usenet post[2-5]. The timestamp proves that the data must have existed at the time, obviously, in order to get into the hash. Each timestamp includes the previous timestamp in its hash, forming a chain, with each additional timestamp reinforcing the ones before it.

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MMMMMWXKXXKKKKKXNXXWMMWXKXNKKKKKXNNXNWMMWXKXXK0KKKXNNXNMMMMM
MMMMMNK0KXKXXXXXXXXWWNNK0KXXXXXXXXXXXWWNNX0KXXKKXXXXXXWMMMMM
MMMMWWWWWWWWWWWWWNWWNNWWWWWNWWNNNNWWWWNNWWWWNNWWWWWWWWWWMMMM

1. Proof-of-Work
   To implement a distributed timestamp server on a peer-to-peer basis, we will need to use a proof-of-work system similar to Adam Back's Hashcash[6], rather than newspaper or Usenet posts. The proof-of-work involves scanning for a value that when hashed, such as with SHA-256, the hash begins with a number of zero bits. The average work required is exponential in the number of zero bits required and can be verified by executing a single hash.
   For our timestamp network, we implement the proof-of-work by incrementing a nonce in the block until a value is found that gives the block's hash the required zero bits. Once the CPU effort has been expended to make it satisfy the proof-of-work, the block cannot be changed without redoing the work. As later blocks are chained after it, the work to change the block would include redoing all the blocks after it.

MMMMMWXXWXK0KKKNWXXWMMWXXNK0000KKXNXXWMMWXKNX000KKXNXKNMMMMM
MMMMWNKXXXKKXKKXNXKNWWNKKXK0KKKKKXNXKNWWWXKXKKKKKKXXXXNWMMMM
MMMWWNKKXXKKK0XNXXKNNNNKXXXKKKKKXNXXXXNNNKKXXKKKKXNXXXNWMMMM
MMMMMWXNWNX XXXXNMMMMM
MMMMMMMXNMM image: depicting blocks NNWXXWMMMM
MMMMWNXXNNN NNNXNWMMMM
MMMMMWX0XXKKKXXXNXXWMMWX0XNXXXXXXNNNXWMMWK0KXKKKXXXNNXNMMMMM
MMMMMWXKXXKKKKKXNXXWMMWXKXNKKKKKXNNXNWMMWXKXXK0KKKXNNXNMMMMM
MMMMMNK0KXKXXXXXXXXWWNNK0KXXXXXXXXXXXWWNNX0KXXKKXXXXXXWMMMMM
MMMMWWWWWWWWWWWWWNWWNNWWWWWNWWNNNNWWWWNNWWWWNNWWWWWWWWWWMMMM

The proof-of-work also solves the problem of determining representation in majority decision making. If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate many IPs. Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it. If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the work of the honest nodes. We will show later that the probability of a slower attacker catching up diminishes exponentially as subsequent blocks are added.
To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they're generated too fast, the difficulty increases.

1. Network
   The steps to run the network are as follows:

   1. New transactions are broadcast to all nodes.
   2. Each node collects new transactions into a block.
   3. Each node works on finding a difficult proof-of-work for its block.
   4. When a node finds a proof-of-work, it broadcasts the block to all nodes.
   5. Nodes accept the block only if all transactions in it are valid and not already spent.
   6. Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.
      Nodes always consider the longest chain to be the correct one and will keep working on extending it. If two nodes broadcast different versions of the next block simultaneously, some nodes may receive one or the other first. In that case, they work on the first one they received, but save the other branch in case it becomes longer. The tie will be broken when the next proof-of-work is found and one branch becomes longer; the nodes that were working on the other branch will then switch to the longer one.
      New transaction broadcasts do not necessarily need to reach all nodes. As long as they reach many nodes, they will get into a block before long. Block broadcasts are also tolerant of dropped messages. If a node does not receive a block, it will request it when it receives the next block and realizes it missed one.

2. Incentive
   By convention, the first transaction in a block is a special transaction that starts a new coin owned by the creator of the block. This adds an incentive for nodes to support the network, and provides a way to initially distribute coins into circulation, since there is no central authority to issue them. The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation. In our case, it is CPU time and electricity that is expended.
   The incentive can also be funded with transaction fees. If the output value of a transaction is less than its input value, the difference is a transaction fee that is added to the incentive value of the block containing the transaction. Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.
   The incentive may help encourage nodes to stay honest. If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.

3. Reclaiming Disk Space
   Once the latest transaction in a coin is buried under enough blocks, the spent transactions before it can be discarded to save disk space. To facilitate this without breaking the block's hash, transactions are hashed in a Merkle Tree [7][2][5], with only the root included in the block's hash. Old blocks can then be compacted by stubbing off branches of the tree. The interior hashes do not need to be stored.

MMMMMWWNNNNNNNNNNNNWMMMWNNNNNNNNNNNNNWMMMWNNNNNNNNNXNNWMMMMM
MMMMMWXK000000KXNXXWMMWXK0000000KXNXXWMMWXK000000KXXXXNMMMMM
MMMMMWXXXKKKKKXNNXXWMMWXKKK00000KXNXXWMMWXKXK000KKXNXXNMMMMM
MMMMMWXXWXK0KKKNWXXWMMWXXNK0000KKXNXXWMMWXKNX000KKXNXKNMMMMM
MMMMWNKXXXKKXKKXNXKNWWNKKXK0KKKKKXNXKNWWWXKXKKKKKKXXXXNWMMMM
MMMWWNKKXXKKK0XNXXKNNNNKXXXKKKKKXNXXXXNNNKKXXKKKKXNXXXNWMMMM
MMMMMWXNWNX XXXXNMMMMM
MMMMMMMXNMM image: blocks and hashes NNWXXWMMMM
MMMMWNXXNNN NNNXNWMMMM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A block header with no transactions would be about 80 bytes. If we suppose blocks are generated every 10 minutes, 80 bytes * 6 * 24 * 365 = 4.2MB per year. With computer systems typically selling with 2GB of RAM as of 2008, and Moore's Law predicting current growth of 1.2GB per year, storage should not be a problem even if the block headers must be kept in memory.

1. Simplified Payment Verification
   It is possible to verify payments without running a full network node. A user only needs to keep a copy of the block headers of the longest proof-of-work chain, which he can get by querying network nodes until he's convinced he has the longest chain, and obtain the Merkle branch linking the transaction to the block it's timestamped in. He can't check the transaction for himself, but by linking it to a place in the chain, he can see that a network node has accepted it, and blocks added after it further confirm the network has accepted it.

MMMMMWWNNNNNNNNNNNNWMMMWNNNNNNNNNNNNNWMMMWNNNNNNNNNXNNWMMMMM
MMMMMWXK000000KXNXXWMMWXK0000000KXNXXWMMWXK000000KXXXXNMMMMM
MMMMMWXXXKKKKKXNNXXWMMWXKKK00000KXNXXWMMWXKXK000KKXNXXNMMMMM
MMMMMWXXWXK0KKKNWXXWMMWXXNK0000KKXNXXWMMWXKNX000KKXNXKNMMMMM
MMMMWNKXXXKKXKKXNXKNWWNKKXK0KKKKKXNXKNWWWXKXKKKKKKXXXXNWMMMM
MMMWWNKKXXKKK0XNXXKNNNNKXXXKKKKKXNXXXXNNNKKXXKKKKXNXXXNWMMMM
MMMMMWXNWNX XXXXNMMMMM
MMMMMMMXNMM image: block hashes NNWXXWMMMM
MMMMWNXXNNN NNNXNWMMMM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As such, the verification is reliable as long as honest nodes control the network, but is more vulnerable if the network is overpowered by an attacker. While network nodes can verify transactions for themselves, the simplified method can be fooled by an attacker's fabricated transactions for as long as the attacker can continue to overpower the network. One strategy to protect against this would be to accept alerts from network nodes when they detect an invalid block, prompting the user's software to download the full block and alerted transactions to confirm the inconsistency. Businesses that receive frequent payments will probably still want to run their own nodes for more independent security and quicker verification.

1. Combining and Splitting Value
   Although it would be possible to handle coins individually, it would be unwieldy to make a separate transaction for every cent in a transfer. To allow value to be split and combined, transactions contain multiple inputs and outputs. Normally there will be either a single input from a larger previous transaction or multiple inputs combining smaller amounts, and at most two outputs: one for the payment, and one returning the change, if any, back to the sender.

MMMMMWXXXKKKKKXNNXXWMMWXKKK00000KXNXXWMMWXKXK000KKXNXXNMMMMM
MMMMMWXXWXK0KKKNWXXWMMWXXNK0000KKXNXXWMMWXKNX000KKXNXKNMMMMM
MMMMWNKXXXKKXKKXNXKNWWNKKXK0KKKKKXNXKNWWWXKXKKKKKKXXXXNWMMMM
MMMWWNKKXXKKK0XNXXKNNNNKXXXKKKKKXNXXXXNNNKKXXKKKKXNXXXNWMMMM
MMMMMWXNWNX XXXXNMMMMM
MMMMMMMXNMM image: transaction NNWXXWMMMM
MMMMWNXXNNN NNNXNWMMMM
MMMMMWX0XXKKKXXXNXXWMMWX0XNXXXXXXNNNXWMMWK0KXKKKXXXNNXNMMMMM
MMMMMWXKXXKKKKKXNXXWMMWXKXNKKKKKXNNXNWMMWXKXXK0KKKXNNXNMMMMM
MMMMMNK0KXKXXXXXXXXWWNNK0KXXXXXXXXXXXWWNNX0KXXKKXXXXXXWMMMMM
MMMMWWWWWWWWWWWWWNWWNNWWWWWNWWNNNNWWWWNNWWWWNNWWWWWWWWWWMMMM

It should be noted that fan-out, where a transaction depends on several transactions, and those transactions depend on many more, is not a problem here. There is never the need to extract a complete standalone copy of a transaction's history.

1. Privacy
   The traditional banking model achieves a level of privacy by limiting access to information to the parties involved and the trusted third party. The necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous. The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone. This is similar to the level of information released by stock exchanges, where the time and size of individual trades, the "tape", is made public, but without telling who the parties were.

MMMMMWWNNNNNNNNNNNNWMMMWNNNNNNNNNNNNNWMMMWNNNNNNNNNXNNWMMMMM
MMMMMWXK000000KXNXXWMMWXK0000000KXNXXWMMWXK000000KXXXXNMMMMM
MMMMMWXXXKKKKKXNNXXWMMWXKKK00000KXNXXWMMWXKXK000KKXNXXNMMMMM
MMMMMWXXWXK0KKKNWXXWMMWXXNK0000KKXNXXWMMWXKNX000KKXNXKNMMMMM
MMMMWNKXXXKKXKKXNXKNWWNKKXK0KKKKKXNXKNWWWXKXKKKKKKXXXXNWMMMM
MMMWWNKKXXKKK0XNXXKNNNNKXXXKKKKKXNXXXXNNNKKXXKKKKXNXXXNWMMMM
MMMMMWXNWNX XXXXNMMMMM
MMMMMMMXNMM image: traditional privacy model NNWXXWMMMM
MMMMWNXXNNN NNNXNWMMMM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As an additional firewall, a new key pair should be used for each transaction to keep them from being linked to a common owner. Some linking is still unavoidable with multi-input transactions, which necessarily reveal that their inputs were owned by the same owner. The risk is that if the owner of a key is revealed, linking could reveal other transactions that belonged to the same owner.

1. Calculations
   We consider the scenario of an attacker trying to generate an alternate chain faster than the honest chain. Even if this is accomplished, it does not throw the system open to arbitrary changes, such as creating value out of thin air or taking money that never belonged to the attacker. Nodes are not going to accept an invalid transaction as payment, and honest nodes will never accept a block containing them. An attacker can only try to change one of his own transactions to take back money he recently spent.
   The race between the honest chain and an attacker chain can be characterized as a Binomial Random Walk. The success event is the honest chain being extended by one block, increasing its lead by +1, and the failure event is the attacker's chain being extended by one block, reducing the gap by -1.
   The probability of an attacker catching up from a given deficit is analogous to a Gambler's Ruin problem. Suppose a gambler with unlimited credit starts at a deficit and plays potentially an infinite number of trials to try to reach breakeven. We can calculate the probability he ever reaches breakeven, or that an attacker ever catches up with the honest chain, as follows[8]:
   pqqz=== probability an honest node finds the next block probability the attacker finds the next block probability the attacker will ever catch up from z blocks behindp= probability an honest node finds the next blockq= probability the attacker finds the next blockqz= probability the attacker will ever catch up from z blocks behind
   qz={1(q/p)zifp≤qifp>q}qz={1ifp≤q(q/p)zifp>q}
   Given our assumption that p>qp>q, the probability drops exponentially as the number of blocks the attacker has to catch up with increases. With the odds against him, if he doesn't make a lucky lunge forward early on, his chances become vanishingly small as he falls further behind.
   We now consider how long the recipient of a new transaction needs to wait before being sufficiently certain the sender can't change the transaction. We assume the sender is an attacker who wants to make the recipient believe he paid him for a while, then switch it to pay back to himself after some time has passed. The receiver will be alerted when that happens, but the sender hopes it will be too late.
   The receiver generates a new key pair and gives the public key to the sender shortly before signing. This prevents the sender from preparing a chain of blocks ahead of time by working on it continuously until he is lucky enough to get far enough ahead, then executing the transaction at that moment. Once the transaction is sent, the dishonest sender starts working in secret on a parallel chain containing an alternate version of his transaction.
   The recipient waits until the transaction has been added to a block and zz blocks have been linked after it. He doesn't know the exact amount of progress the attacker has made, but assuming the honest blocks took the average expected time per block, the attacker's potential progress will be a Poisson distribution with expected value:
   λ=zqpλ=zqp
   To get the probability the attacker could still catch up now, we multiply the Poisson density for each amount of progress he could have made by the probability he could catch up from that point:
   ∑k=0∞λke−λk!⋅{(q/p)(z−k)1ifk≤zifk>z}∑k=0∞λke−λk!⋅{(q/p)(z−k)ifk≤z1ifk>z}
   Rearranging to avoid summing the infinite tail of the distribution...
   1−∑k=0zλke−λk!(1−(q/p)(z−k))1−∑k=0zλke−λk!(1−(q/p)(z−k))
   Converting to C code...
   #include
   double AttackerSuccessProbability(double q, int z)
   {
   double p = 1.0 - q;
   double lambda = z * (q / p);
   double sum = 1.0;
   int i, k;
   for (k = 0; k <= z; k)
   {
   double poisson = exp(-lambda);
   for (i = 1; i <= k; i)
   poisson *= lambda / i;
   sum -= poisson * (1 - pow(q / p, z - k));
   }
   return sum;
   }

Running some results, we can see the probability drop off exponentially with zz.
q=0.1
z=0 P=1.0000000
z=1 P=0.2045873
z=2 P=0.0509779
z=3 P=0.0131722
z=4 P=0.0034552
z=5 P=0.0009137
z=6 P=0.0002428
z=7 P=0.0000647
z=8 P=0.0000173
z=9 P=0.0000046
z=10 P=0.0000012

q=0.3
z=0 P=1.0000000
z=5 P=0.1773523
z=10 P=0.0416605
z=15 P=0.0101008
z=20 P=0.0024804
z=25 P=0.0006132
z=30 P=0.0001522
z=35 P=0.0000379
z=40 P=0.0000095
z=45 P=0.0000024
z=50 P=0.0000006

Solving for P less than 0.1%...
P < 0.001
q=0.10 z=5
q=0.15 z=8
q=0.20 z=11
q=0.25 z=15
q=0.30 z=24
q=0.35 z=41
q=0.40 z=89
q=0.45 z=340

1. Conclusion
   We have proposed a system for electronic transactions without relying on trust. We started with the usual framework of coins made from digital signatures, which provides strong control of ownership, but is incomplete without a way to prevent double-spending. To solve this, we proposed a peer-to-peer network using proof-of-work to record a public history of transactions that quickly becomes computationally impractical for an attacker to change if honest nodes control a majority of CPU power. The network is robust in its unstructured simplicity. Nodes work all at once with little coordination. They do not need to be identified, since messages are not routed to any particular place and only need to be delivered on a best effort basis. Nodes can leave and rejoin the network at will, accepting the proof-of-work chain as proof of what happened while they were gone. They vote with their CPU power, expressing their acceptance of valid blocks by working on extending them and rejecting invalid blocks by refusing to work on them. Any needed rules and incentives can be enforced with this consensus mechanism.

References
1. W. Dai, "b-money," http://www.weidai.com/bmoney.txt, 1998. ↩
2. H. Massias, X.S. Avila, and J.-J. Quisquater, "Design of a secure timestamping service with minimal trust requirements," In 20th Symposium on Information Theory in the Benelux, May 1999. ↩ ↩
3. S. Haber, W.S. Stornetta, "How to time-stamp a digital document," In Journal of Cryptology, vol 3, no 2, pages 99-111, 1991. ↩
4. D. Bayer, S. Haber, W.S. Stornetta, "Improving the efficiency and reliability of digital time-stamping," In Sequences II: Methods in Communication, Security and Computer Science, pages 329-334, 1993. ↩
5. S. Haber, W.S. Stornetta, "Secure names for bit-strings," In Proceedings of the 4th ACM Conference on Computer and Communications Security, pages 28-35, April 1997. ↩ ↩
6. A. Back, "Hashcash - a denial of service counter-measure,"http://www.hashcash.org/papers/hashcash.pdf, 2002. ↩
7. R.C. Merkle, "Protocols for public key cryptosystems," In Proc. 1980 Symposium on Security and Privacy, IEEE Computer Society, pages 122-133, April 1980. ↩
8. W. Feller, "An introduction to probability theory and its applications," 1957. ↩

Emails, mailing list writings, forum posts by Satoshi Nakamoto (arranged in chronological order):

Adam Back “COPA trial” email (these Adam Back-Satoshi emails became public in February of 2024)
From: "[email protected]" [email protected]
Sent: Wed 8/20/2008 6:30:39 PM (UTC+01:00)
To: [email protected]
Subject: Citation of your Hashcash paper
I'm getting ready to release a paper that references your Hashcash paper and I wanted to make sure I have the citation right. Here's what I have:
[5] A. Back, "Hashcash - a denial of service counter-measure,"
http://www.hashcash.org/papers/hashcash.pdf, 2002.
I think you would find it interesting, since it finds a new use for hash-based proof-of-work as a way to make e-cash work. You can download a pre-release draft at http://www.upload.ae/file/6157/ecashpdf.html Feel free to forward it to anyone else you think would be interested. I'm also nearly finished with a C++ implementation to release as open source.
Title: Electronic Cash Without a Trusted Third PartyAbstract: A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without the burdens of going through a financial institution. Digital signatures offer part of the solution, but the main benefits are lost if a trusted party is still required to prevent double-spending. We propose a solution to the doublespending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as honest nodes control the most CPU power on the network, they can generate the longest chain and outpace any attackers. The network itself requires minimal structure. Messages are broadcasted on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
[email protected]

Adam Back “COPA trial” email
From: "Adam Back" [email protected]
Sent: Thur 8/21/2008 1:55:59 PM (UTC+01:00)
To: [email protected]
Cc: [email protected]
Subject: Re: Citation of your Hashcash paper
Yes citation looks fine, I'll take a look at your paper. You maybe aware of the "B-money" proposal, I guess google can find it for you, by Wei Dai which sounds to be somewhat related to your paper. (The b-money idea is just described concisely on his web page, he didn’t write up a paper).
Adam
On Wed, Aug 20, 2008 at 6:30 PM, [email protected]
[email protected] wrote:

I'm getting ready to release a paper that references your Hashcash paper and I wanted to make sure I have the citation right. Here's what I have:

[5] A. Back, "Hashcash - a denial of service counter-measure,"
http://www.hashcash.org/papers/hashcash.pdf, 2002.

I think you would find it interesting, since it finds a new use for hash-based proof-of-work as a way to make e-cash work. You can download a pre-release draft at http://www.upload.ae/file/6157/ecashpdf.html Feel free to forward it to anyone else you think would be interested. I'm also nearly finished with a C++ implementation to release as open source.

Title: Electronic Cash Without a Trusted Third Party

Abstract: A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without the burdens of going through a financial institution. Digital signatures offer part of the solution, but the main benefits are lost if a trusted party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based
proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as honest nodes control the most CPU power on the network, they can generate the longest chain and outpace any attackers. The network itself requires minimal structure. Messages are broadcasted on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.

[email protected]

Adam Back “COPA trial” email
From: "[email protected]" [email protected]
Sent: Thur 8/21/2008 6:59:49 PM (UTC+01:00)
To: [email protected]
Subject: RE: Citation of your Hashcash paper
Thanks, I wasn't aware of the b-money page, but my ideas start from exactly that point. I'll e-mail him to confirm the year of publication so I can credit him.
The main thing my system adds is to also use proof-of-work to support a distributed timestamp server. While users are generating proof-of-work to make new coins for themselves, the same proof-of-work is also supporting the network timestamping. This is instead of Usenet.
Satoshi

Yes citation looks fine, I'll take a look at your paper. You maybe
aware of the "B-money" proposal, I guess google can find it for you,
by Wei Dai which sounds to be somewhat related to your paper. (The
b-money idea is just described concisely on his web page, he didnt
write up a paper).

Adam

On Wed, Aug 20, 2008 at 6:30 PM, [email protected]
[email protected] wrote:
I'm getting ready to release a paper that references your Hashcash paper and I wanted to make sure I have the citation right. Here's what I have:

[5] A. Back, "Hashcash - a denial of service counter-measure,"
http://www.hashcash.org/papers/hashcash.pdf, 2002.

I think you would find it interesting, since it finds a new use for hash-based proof-of-work as a way to make e-cash work. You can download a pre-release draft at http://www.upload.ae/file/6157/ecashpdf.html Feel free to forward it to anyone else you think would be interested. I'm also nearly finished with a C++ implementation to release as open source.

Title: Electronic Cash Without a Trusted Third Party

Abstract: A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without the burdens of going through a financial institution. Digital signatures offer part of the solution, but the main benefits are lost if a trusted party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as honest nodes control the most CPU power on the network, they can generate the longest chain and outpace any attackers. The network itself requires minimal structure. Messages are broadcasted on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.

[email protected]