What is the Bitcoin white paper?

On October 31, 2008, a nine-page research paper was published in an online cryptography mailing list outlining the concept for an entirely new type of money. 

Entitled, “Bitcoin: A Peer-to-Peer Electronic Cash System,” the proposed Bitcoin protocol promised to provide a trustless form of digital currency that was borderless, secured by cryptography, and operated outside of the control of banks.

An anonymous person or group of people called Satoshi Nakamoto released the document amid a global financial crisis triggered by the collapse of the United States’ housing market — an event that would later be known as the Great Recession.

At the time, banks were making billions of dollars packaging together risky mortgages and offloading them onto investors as collateralized debt products. These products were hugely popular, in part due to prominent rating agencies being financially incentivized to grade them as top-quality investments. 

The U.S real-estate market was booming off the back of record-low interest rates, driving demand for these increasingly subprime mortgage-backed securities. 

Inevitably, the real-estate market stalled as economic activity in the United States began to contract. 

Thousands of people who had been granted mortgages without completing income checks or paying deposits started to default en masse. This caused pension funds, commercial banks, and other financial institutions that had invested huge sums of money into precarious debt products to go under. 

Perhaps the most famous example was the bankruptcy of Lehman Brothers bank, which many regard as the peak of the collapse.

Shockwaves of the crisis rippled throughout global financial markets, causing widespread recessions. During the Great Recession, countless people lost their jobs and homes. However, only one American trader was ever arrested.

Dramatic change was long overdue.

The Bitcoin white paper provided an overview of how Satoshi Nakamoto’s ambitious protocol would work, including:

• How bitcoin transactions work.

• How network consensus and verification is achieved.

• How the network is secured against attacks.

This document was akin to a technical constitution. It was a governing document for a new form of money that was stateless and completely decentralized.

Leveraging existing techniques from cryptography and nascent blockchain ledger technology, Nakamoto asserted that it was possible to create a digital payment system that did not rely on a trusted intermediary. 

Instead, a peer-to-peer network of volunteers was proposed as a way to operate the system, similar to how a Tor network operates. This, coupled with digital signatures generated using complex mathematics and cryptographic algorithms would allow users to unequivocally prove their ownership of funds without revealing their sensitive information. 

Remarkably, bitcoin would also grant users the self-sovereign ability to approve their own transactions.

In order to allow users to approve their own transactions, without a trusted intermediary acting in the middle, there needed to be a system in place that prevents the processing of invalid transactions — namely double-spending the same funds.

Nakamoto dealt with this issue by incorporating a consensus mechanism pioneered by cryptographer and CEO of Blockstream, Adam Back. Consensus mechanisms are systems that encourage a group of distributed users, a majority of which do not know each other nor should in any way trust each other, to act honestly when agreeing on a single data entry.

Known as proof-of-work (PoW), Back’s mechanism requires users to invest their time and computing power to win a cryptography-based competition before they perform the all-important role of data validation. By forcing volunteers to have some skin in the game, the likelihood of them acting dishonestly was significantly reduced.

Nakamoto recognized that a peer-to-peer powered network can only be secure provided a majority of users act honestly based on the rules coded into the protocol. 

As new blocks of transaction data are added to the blockchain and verified by at least 51% of the network, a single “honest” chain is created that everyone agrees is the true history of valid transactions. Even if attackers attempt to create their own invalid blocks, the rest of the network will reject them in favor of the longest chain.

But what if a majority of the Bitcoin blockchain is controlled by a single attacker, or a colluding group of attackers? This type of attack — known as a 51% attack — would grant attackers the power to change the order of, and even block, inbound transactions if they were able to outcompete the longest chain and replace it with their own.

However, they would not be able to create new units of bitcoin at will or alter the issuance rate. These parameters are controlled by the protocol’s underlying code, not by network validators.

Nakamoto likened this to the Gambler’s Ruin problem, whereby unless attackers were consistently successful early on in their onslaught, it becomes increasingly unlikely they’d be able to pull off the attack and establish a longer chain.

The author(s) of the Bitcoin White paper operated under the pseudonym, Satoshi Nakamoto.

Despite stating they were a male from Japan in one of their online profiles, the pseudonymous programmer(s) made an extensive effort to disguise their true identity. 

Years later, and after a laundry list of people have attempted to stake their claim as Bitcoin’s creator, we are no closer to knowing who Satoshi Nakamoto is or was.

Nakamoto worked on the Bitcoin protocol for the first two years of its launch, between 2009 and 2011. 

In April 2011, they left a message handing control of the domain Bitcoin.org to Martii Malmi – one of the earliest Bitcoin developers. Many believe this was the last time Nakamoto was active online, though inconclusive messages have surfaced some years later from old accounts.

Bitcoin.org was the first ever Bitcoin-related website, registered in August 2008 by Nakamoto and Malmi. The web page hosted the original Bitcoin white paper document for over a decade before nChain Chief Scientist, Craig Wright, won the default copyright claims to it in a U.K court judgment delivered in 2021.

The emergence of the Bitcoin white paper marked the first time a viable and accessible digital currency system was proposed to the world — one that set out to empower individuals and remove their dependency on centralized financial institutions.

Other attempts had been made in the past to establish a cryptography-based digital currency, but none were ever developed.

In 1998, a decade before the release of the Bitcoin white paper, cryptographer Wei Dai published two proposals in the cypherpunks mailing list—a now infamous group of cryptographers to which Satoshi Nakamoto and Adam Back belonged. In it, he presented his own electronic cash system called B Money.

Unlike Bitcoin, Dai’s B Money remained theoretical. His first proposal was unable to address the double spend problem, while the second proposal involved a stablecoin-like issuance system that Dai later admitted “wasn't a complete practical design.”

Many of the features that comprised B Money, however, would later be adopted in the Bitcoin protocol, including a peer-to-peer network, digital signatures and the PoW consensus mechanism. 

In the same year Dai proposed B Money, Nick Szabo – another member of the original cypherpunk group – conceptualized Bit Gold. 

Like B Money, Bit Gold possessed a number of similar components to Bitcoin, but there were also parts that were inherently centralized. Servers (volunteer network nodes) had to be trusted to act honestly when timestamping transactions or registering titles, creating dependencies which Bitcoin did not have. Szabo noted here that “Nakamoto improved a significant security shortcoming that my design had” and ultimately decided not to develop it further. 

Bitcoin’s triumph as the world’s first viable cryptocurrency is testament to Nakamoto’s genius and the innovative work of other prominent cryptographers. The Bitcoin white paper remains to this day one of the most important research papers ever published and paved the way for a revolutionary new financial frontier.

Looking to learn more about the world's first cryptocurrency? Head on over to the “What is Bitcoin?” page located in Kraken’s Learn Center for a deeper dive. 

If you are interested in learning more about the various types of cryptocurrencies that came after bitcoin, you can visit Kraken’s “Types of Cryptocurrency” page. 

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