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
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as
trusted third parties to process electronic payments
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 steps to run the network are as follows:
- New transactions are broadcast to all nodes.
- Each node collects new transactions into a block.
- Each node works on finding a difficult proof-of-work for its block.
- When a node finds a proof-of-work, it broadcasts the block to all nodes.
- Nodes accept the block only if all transactions in it are valid and not already spent.
- 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.
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.
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