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, 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.

Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.

By making some adjustments to the database settings, I was able to make the initial block download about 5 times faster. It downloads in about 30 minutes. The database default had it writing each block to disk synchronously, which is not necessary. I changed the settings to let it cache the changes in memory and write them out in a batch. Blocks are still written transactionally, so either the complete change occurs or none of it does, in either case the data is left in a valid state. I only enabled this change during the initial block download. When you come within 2000 blocks of the latest block, these changes turn off and it slows down to the old way.

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.

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 Bitcoin network might actually reduce spam by diverting zombie farms to generating bitcoins instead.

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 root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.

Yes, but we can win a major battle in the arms race and gain a new territory of freedom for several years.

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.

Bitcoin would be convenient for people who don't have a credit card or don't want to use the cards they have, either don't want the spouse to see it on the bill or don't trust giving their number to "porn guys", or afraid of recurring billing.

There will be transaction fees, so nodes will have an incentive to receive and include all the transactions they can. Nodes will eventually be compensated by transaction fees alone when the total coins created hits the pre-determined ceiling.

Announcing version 0.3 of Bitcoin, the P2P cryptocurrency! Bitcoin is a digital currency using cryptography and a distributed network to replace the need for a trusted central server. Escape the arbitrary inflation risk of centrally managed currencies! Bitcoin's total circulation is limited to 21 million coins. The coins are gradually released to the network's nodes based on the CPU power they contribute, so you can get a share of them by contributing your idle CPU time.

The proof-of-work chain is a solution to the Byzantine Generals' Problem. I'll try to rephrase it in that context. A number of Byzantine Generals each have a computer and want to attack the King's wi-fi by brute forcing the password, which they've learned is a certain number of characters in length. Once they stimulate the network to generate a packet, they must crack the password within a limited time to break in and erase the logs, otherwise they will be discovered and get in trouble. They only have enough CPU power to crack it fast enough if a majority of them attack at the same time. They don't particularly care when the attack will be, just that they all agree. It has been decided that anyone who feels like it will announce a time, and whatever time is heard first will be the official attack time. The problem is that the network is not instantaneous, and if two generals announce different attack times at close to the same time, some may hear one first and others hear the other first. They use a proof-of-work chain to solve the problem. Once each general receives whatever attack time he hears first, he sets his computer to solve an extremely difficult proof-of-work problem that includes the attack time in its hash. The proof-of-work is so difficult, it's expected to take 10 minutes of them all working at once before one of them finds a solution. Once one of the generals finds a proof-of-work, he broadcasts it to the network, and everyone changes their current proof-of-work computation to include that proof-of-work in the hash they're working on. If anyone was working on a different attack time, they switch to this one, because its proof-of-work chain is now longer. After two hours, one attack time should be hashed by a chain of 12 proofs-of-work. Every general, just by verifying the difficulty of the proof-of-work chain, can estimate how much parallel CPU power per hour was expended on it and see that it must have required the majority of the computers to produce that much proof-of-work in the allotted time. They had to all have seen it because the proof-of-work is proof that they worked on it. If the CPU power exhibited by the proof-of-work chain is sufficient to crack the password, they can safely attack at the agreed time. The proof-of-work chain is how all the synchronisation, distributed database and global view problems you've asked about are solved.

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.