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In the previous part number 3 of the Bitcoin white-taper, we have explained the chapters,Reclaiming Disk Space, Simplified Payment Verification, Combining and Splitting Value from the whitepaper. In the following fourth and last part of the whitepaper, we will take care of the chapters, Privacy, Calculations, and Conclusion
10. Privacy
In the Traditional Banking Model, privacy is achieved by restricting access to information for involved parties and the trusted third party.
Although in Bitcoin all transactions are publicly announced, privacy can be maintained by cutting off the flow of information elsewhere. This is done by keeping the public keys anonymous. With Bitcoin, the public can see that someone is sending an amount of money to someone else. However, no information is provided that links the transactions to anyone. This is similar to the information level of stock market transactions.
As an additional safeguard, a new key pair (private/public key) should be used for each transaction so that it is not possible to infer a common owner.
Some linking is still unavoidable with multi-input transactions, which necessarily reveal that their inputs were owned by the same owner. The risk is that if the owner of a key is revealed, linking could reveal other transactions that belonged to the same owner.
Annotation Through the blockchain, the decentralized accounting, the network participants all have access to the transactions and you can see how much is transferred from one party to another at a given time, but through the encryption process, it is not possible who is behind the transaction.
11. Calculations
Even in the case that an attacker would manage to create an alternative faster chain than the honest chain, the system would not be opened for arbitrary changes. The attacker could not create values or withdraw money that never belonged to the attacker.
Nodes do not accept invalid transactions and honest nodes never accept a block containing them. The race between honest and attacker chains can be characterized as a binomial random walk. The probability that an attacker catches up from a certain deficit is analogous to a Gambler’s Ruin problem.
Annotation The calculations example mentioned in the white paper will not be discussed further. However, it can be assumed that if the probability of an honest node finding the next block is greater than that of the attacker, the probability decreases exponentially.
12. Conclusion
- A system for electronic transactions that do not rely on trust has been proposed.
- Coins are made from digital signatures, this allows strong ownership control.
- A public peer-to-peer network was proposed that records a public history of all transactions.
- The public history of transactions quickly becomes impractical for an attacker when honest nodes control a large portion of CPU power.
- The network is robust in its unstructured simplicity and nodes operate all at once with little coordination
- Nodes do not need to be identified and can enter and leave the network at will.
- Nodes vote with their CPU power, accept valid blocks, and extend them.
- Nodes reject invalid blocks by refusing to continue working on them.
- All necessary rules and incentives can be enforced through this consensus mechanism.
The original whitepaper about Bitcoin can be downloaded in different languages here: bitcoin.org
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