Internet commerce has become almost entirely dependent 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.
What is needed is an electronic payment system based on cryptographic proof instead of trust, which allows any two willing parties to negotiate directly with each other without the need for a reliable third party. Transactions that are impractical to reverse would protect sellers from fraud, and normal escrow mechanisms to protect buyers would easily be implemented.
This paper proposes a solution to the double spending problem using a peer-to-peer distributed time stamp server to generate a computational test of the chronological order of transactions.
The system is secure as long as honest nodes together control more CPU power than any cooperative group of attacker nodes.
Read / download the original bitcoin whitepaper here.
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