Direct from one party to another: Craig Wright explains Bitcoin

Dr. Craig Wright recently published a blog post explaining the first sentence of the Bitcoin White Paper in detail. There are almost 3,000 words dedicated to explaining key and fundamental concepts about Bitcoin that are still misunderstood. You can read it here.

Dr. Wright opens the blog by saying that he is frustrated by the lack of understanding of what he considers fundamental terms and concepts in the white paper. So in this post he will explain the first sentence of his white paper in detail.

Direct payments from one party to another

A pure peer-to-peer version of electronic cash would allow electronic payments to be sent directly from one party to another without going through a financial institution.

The very first sentence of the Bitcoin White Paper notes that payments can be sent directly from one party to another. This does not say that it is done by sending it through multiple hops. If you send a payment to a node and someone collects from that node, the node is an intermediary.

In Dr. Wright’s example, Alice wants to pay Bob, so she directly gives Bob a transaction in exchange for goods and services. On the other hand, Bob wants to make sure she didn’t double use the transaction. For Bob to be sure that the transaction is valid, he needs to register ownership of the transaction with the nodes. The tokens Alice sent him remain with Bob, and the transaction record remains on the blockchain.

Elaborating, Dr. Wright explains that, assuming Alice hasn’t cheated, Bob will have his ownership recorded on the blockchain. His ownership can then be asserted. Peer-to-peer transactions work like this. Furthermore, Bob can be notified within a fraction of a second whether the transaction is valid. He can also check again in a few seconds for extra security.

If Alice cheats, she will have committed fraud and left evidence on the blockchain, which can be used in a court of law. Digital signatures, a fundamental element of the Bitcoin system, provide good evidence that can be used to prosecute anyone who commits such fraud.

Zooms in on the meaning of various words in the first sentence

Dr. Wright then goes deeper and focuses on specific words in the first sentence of the Bitcoin White Paper. He wants to be crystal clear about what they mean.

Clean means entirely or exclusively done in a clean manner. A pure peer-to-peer system should send electronic cash directly without exception. Dr. Wright explains that when Bitcoin was created, it was sent IP to IP, not to a wallet address, but to an IPv4 or IPv6 network address.

Electronic cash is not digital gold, of course. The electronic part is self-explanatory. Cash is money in the form of coins or notes. In contrast, bank checks are not cash because you receive the money from an intermediary. On the other hand, notes or negotiable instruments are accounted for as cash. Cash is ready money that is quickly exchanged and settled. You can quickly verify if it’s real and check if a user has tricked you.

Dr. Wright is not satisfied with what people are saying about the importance of peer-to-peer today. He says that many widely accepted definitions are Chinese whispers of the originals. He says that when he created Bitcoin, he used the terminology that was most respected at the time. He refers to an article by Schollmeier in which the different concepts of peer-to-peer networks were defined. A pure peer-to-peer network is one where there are no servers. A pure peer-to-peer system like Bitcoin enables users to exchange value directly. Obviously doesn’t directly involve going through someone else’s node. By definition, sending something to anyone other than the final party is not peer-to-peer.

The way many people use blockchains is wrong and according to Dr. Wright, and by definition, it is not peer-to-peer. Decentralization means pushing information to the edges, he says. No central node network should control everything. No small group of developers should set rules and arbitrarily change them. Decentralization refers to individuals being able to exchange information and minority groups being able to act independently.

On the role of nodes in peer-to-peer transactions

Dr. Wright delves deeper into the role of nodes, explaining that nodes are not irrelevant. The Bitcoin white paper doesn’t say that.

However, the first sentence states that payments can be “sent directly without going through a financial institution.” When Alice gives a transaction and related tokens to Bob, nothing goes through nodes. Nodes do not determine whether the transaction is completed and recorded. Bob decides this. Bob has received payment directly from Alice in exchange for goods or services. In the exchange, the nodes do no more than accept a timed transaction from Bob and record it.

When Bob sends his transaction to the network, he does not broadcast to one node. He sends it to all the nodes he can see. The nodes are paid a small fee to record Bob’s information. They act under an agency agreement through a unilateral contract with the issuer. Dr. Wright is the issuer and responsible party of Bitcoin. In the Bitcoin system, nodes act as honest agents to record the information that returns information related to the validity of the transactions. This is what a node is paid for.

Dr. Wright digs even deeper and explains how Bitcoin is subject to the law, explaining that when a node records Bob’s transaction, it adds it to a block. However, the block is not valid yet. Only one block will be validated via the proof of work process. All nodes can refer to the order of transactions, so if a miner disputes the order, there is evidence to prove that one of the nodes is acting dishonestly. This evidence can be presented in court since rogue nodes commit a cybercrime. He tells us that this is covered by various cybercrime laws around the world.

Furthermore, nodes do not care about transaction details. They assume that the owner of the transaction is the owner unless there is evidence to the contrary. Proof of ownership can be presented in court if necessary. Court orders can quickly notify the entire network of nodes and operators when there is an error.

Are nodes financial institutions?

Dr. Wright explains that some argue that nodes act as a financial institution. However, for small random payments, a node does not act in any way that can be seen as a trusted intermediary. He says that the registration of information and the provision of notary services differ from what would create a financial institution. On the contrary, financial institutions cannot process micropayments because of the controls they must implement.

Dr. Wright emphasizes that nodes don’t make rules – they enforce them. Nodes act as notaries, recording transactions and following a predefined set of rules. In this function, nodes do not act as financial institutions. They offer a fee payment service. Which service? Record transactions and reject attempts to send the same input values ​​more than once.

Dr. Wright explains that input into Bitcoin can only be used once. The double hash function does not allow Transaction IDs (TXID) collisions. There is no way to have a TXID occur more than once in the Bitcoin system.

Dr. Wright talks more about legal obligations, telling us that Bob and Alice need to make sure they follow the rules in their jurisdiction. This system mirrors cash. When Alice sends a transaction to Bob, she is communicating directly with him. It is up to Alice and Bob to check statutory transaction information. Gathering information about AML/KYC regulations does not have to fall to nodes. For example, if Alice gives Bob $11,000, he must record it in most jurisdictions. Bitcoin allows for the private and secure storage of this information that can be forensically proven if necessary.

A summary of the first sentence of the Bitcoin White Paper

Dr. Wright reiterates that Bitcoin is a direct communication system. It allows Alice to talk to Bob directly and send electronic cash. This part does not require the nodes. Bob simply uses the nodes to validate the transaction. He can submit the transaction for processing any time he wants, but it is at risk until the nodes confirm it.

In his Master of Laws (LLM) studies, Dr. Wright understood that nodes would not be responsible for the actions of other parties if they followed the rules, implemented necessary legal changes and acted as a library with reference to publication. It is a commercial system that acts within the law, he says.

Dr Wright says he is frustrated that he has to explain basic points 14 years after the paper was published. He is angry because he created a micropayment system to allow the poorest people in the world to trade and it has been twisted into a criminal money laundering and Ponzi scheme (BTC). He says he will be happy when his system is used as designed.

Watch: Dr. Craig Wright’s keynote address at the BSV Global Blockchain Convention: Cloud Security, Overlays & Blockchain

New to Bitcoin? Check out CoinGeeks Bitcoin for beginners section, the ultimate resource guide for learning more about Bitcoin – originally envisioned by Satoshi Nakamoto – and blockchain.