2.4 Use Case 1: Bitcoin Network

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Bitcoin is a P2P Money & Payment Network. The way the Internet was originally designed, money could not be transferred natively over the Internet without the need for intermediary services, such as financial service providers that interface with ecommerce websites and app stores. The problem was that a unit of currency—issued as a digital file— could be copied, and copies of that same digital file could be sent from one computer to multiple other computers simultaneously. To avoid potential double spending issues, payments over the Internet have been and still are predominantly settled via the private ledgers of a complex web of financial service providers. The related service fees which (depending on the amount of money transferred and the number of intermediary services involved) can account for up to 30 percent of the final retail price, are often silently passed on to the customers of the ecommerce shops or app stores. Bitcoin was created with the purpose of mitigating these issues by providing a P2P electronic cash system that resolves the double-spending problem over the Internet in the absence of traditional financial intermediaries. The proposed solution was a coordination mechanism (Proof-of-Work) that allowed untrusted Internet actors to collectively maintain a public ledger of transactions in a Sybil attack resistant way, and by rewarding them with newly minted Bitcoin tokens.