Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner

The problem of course is the payee can't verify that one of the owners did not double-spend the coin.

A common solution is to introduce a trusted central authority, or mint, that checks every transaction for double spending. After each transaction, the coin must be returned to the mint to issue a new coin, and only coins issued directly from the mint are trusted not to be double-spent. The problem with this solution is that the fate of the entire money system depends on the company running the mint, with every transaction having to go through them, just like a bank. We need a way for the payee to know that the previous owners did not sign any earlier transactions.

For our purposes, the earliest transaction is the one that counts, so we don't care about later attempts to double-spend. The only way to confirm the absence of a transaction is to be aware of all transactions. In the mint based model, the mint was aware of all transactions and decided which arrived first. To accomplish this without a trusted party, transactions must be publicly announced [1], and we need a system for participants to agree on a single history of the order in which they were received. The payee needs proof that at the time of each transaction, the majority of nodes agreed it was the first received.

and widely publishing the hash, such as in a newspaper or Usenet post [2-5]. The timestamp proves that the data must have existed at the time, obviously, in order to get into the hash.

Each timestamp includes the previous timestamp in its hash, forming a chain, with each additional timestamp reinforcing the ones before it.

To implement a distributed timestamp server on a peer-to-peer basis, we will need to use a proof of-work system similar to Adam Back's Hashcash [6], rather than newspaper or Usenet posts.

The proof-of-work involves scanning for a value that when hashed, such as with SHA-256, the

hash begins with a number of zero bits. The average work required is exponential in the number of zero bits required and can be verified by executing a single hash.

The proof-of-work also solves the problem of determining representation in majority decision making.

We will show later that the probability of a slower attacker catching up diminishes exponentially as subsequent blocks are added.

To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they're generated too fast, the difficulty increases.