Quotable Satoshi

If you're having trouble with the inflation issue, it's easy to tweak it for transaction fees instead. It's as simple as this: let the output value from any transaction be 1 cent less than the input value. Either the client software automatically writes transactions for 1 cent more than the intended payment value, or it could come out of the payee's side. The incentive value when a node finds a proof-of-work for a block could be the total of the fees in the block.

The proof-of-work is a Hashcash style SHA-256 collision finding. It's a memoryless process where you do millions of hashes a second, with a small chance of finding one each time. The 3 or 4 fastest nodes' dominance would only be proportional to their share of the total CPU power. Anyone's chance of finding a solution at any time is proportional to their CPU power.

A transaction will quickly propagate throughout the network, so if two versions of the same transaction were reported at close to the same time, the one with the head start would have a big advantage in reaching many more nodes first. Nodes will only accept the first one they see, refusing the second one to arrive, so the earlier transaction would have many more nodes working on incorporating it into the next proof-of-work. In effect, each node votes for its viewpoint of which transaction it saw first by including it in its proof-of-work effort. If the transactions did come at exactly the same time and there was an even split, it's a toss up based on which gets into a proof-of-work first, and that decides which is valid.

When a node receives a block, it checks the signatures of every transaction in it against previous transactions in blocks. Blocks can only contain transactions that depend on valid transactions in previous blocks or the same block. Transaction C could depend on transaction B in the same block and B depends on transaction A in an earlier block.

As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: - boring grey in colour - not a good conductor of electricity - not particularly strong, but not ductile or easily malleable either - not useful for any practical or ornamental purpose and one special, magical property: - can be transported over a communications channel If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it. Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it. I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something. (I'm using the word scarce here to only mean limited potential supply)

Excellent choice of a first project, nice work. I had planned to do this exact thing if someone else didn't do it, so when it gets too hard for mortals to generate 50BTC, new users could get some coins to play with right away. Donations should be able to keep it filled. The display showing the balance in the dispenser encourages people to top it up. You should put a donation bitcoin address on the page for those who want to add funds to it, which ideally should update to a new address whenever it receives something.

I would be surprised if 10 years from now we're not using electronic currency in some way, now that we know a way to do it that won't inevitably get dumbed down when the trusted third party gets cold feet.

A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases. In your head, you do a probability estimate balancing the odds that it keeps increasing.

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.

I would be surprised if 10 years from now we're not using electronic currency in some way, now that we know a way to do it that won't inevitably get dumbed down when the trusted third party gets cold feet.

The price of any commodity tends to gravitate toward the production cost. If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling more. At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.

The race is to spread your transaction on the network first. Think 6 degrees of freedom -- it spreads exponentially. It would only take something like 2 minutes for a transaction to spread widely enough that a competitor starting late would have little chance of grabbing very many nodes before the first one is overtaking the whole network. During those 2 minutes, the merchant's nodes can be watching for a double-spent transaction. The double-spender would not be able to blast his alternate transaction out to the world without the merchant getting it, so he has to wait before starting. If the real transaction reaches 90% and the double-spent tx reaches 10%, the double-spender only gets a 10% chance of not paying, and 90% chance his money gets spent. For almost any type of goods, that's not going to be worth it for the scammer.

If SHA-256 became completely broken, I think we could come to some agreement about what the honest block chain was before the trouble started, lock that in and continue from there with a new hash function.

The proof-of-work is a Hashcash style SHA-256 collision finding. It's a memoryless process where you do millions of hashes a second, with a small chance of finding one each time. The 3 or 4 fastest nodes' dominance would only be proportional to their share of the total CPU power. Anyone's chance of finding a solution at any time is proportional to their CPU power.

Difficulty just increased by 4 times, so now your cost is US$0.02/BTC.

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, 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.

It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy. Once it gets bootstrapped, there are so many applications if you could effortlessly pay a few cents to a website as easily as dropping coins in a vending machine.

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.

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.

A transaction will quickly propagate throughout the network, so if two versions of the same transaction were reported at close to the same time, the one with the head start would have a big advantage in reaching many more nodes first. Nodes will only accept the first one they see, refusing the second one to arrive, so the earlier transaction would have many more nodes working on incorporating it into the next proof-of-work. In effect, each node votes for its viewpoint of which transaction it saw first by including it in its proof-of-work effort. If the transactions did come at exactly the same time and there was an even split, it's a toss up based on which gets into a proof-of-work first, and that decides which is valid.