What You Will Be Able To Do

• Explain the three jobs of money
• Describe why digital copies break digital cash
• Define double spending and how a ledger stops it
• Name what intermediaries do and cost
• Build a tiny ledger in Python

Why Money Exists

• Barter needs both sides to want what the other has
• Money is a shared middle token
• Everyone accepts it because they expect others will too

Three Jobs Of Money

• Medium of exchange: accepted as payment
• Store of value: keeps worth over time
• Unit of account: prices are quoted in it

A Balance Is A Ledger Entry

• Gold coins carry value in the metal
• Bank balances are rows in a database
• A ledger lists who owns what and who paid whom
• Key question: who may write to it?

Alice   10
Bob      0

Alice -> Bob : 4

Alice    6
Bob      4

Digital Things Are Easy To Copy

• A copy of a file equals the original
• A file saying 'worth 10 euros' can be pasted twice
• Shops cannot tell original from copy

Double Spending

• Same value used in two different payments
• Digital counterfeiting
• Every digital cash system must prevent it

The Classic Fix: A Referee

• A bank checks the balance before each payment
• It deducts the amount and records the payment
• The second payment fails with zero balance
• The key is one agreed order of events

pay(Alice, ShopA, 10)  -> ok, balance 0
pay(Alice, ShopB, 10)  -> refused

What Intermediaries Provide

• Identity checks
• Safe custody of funds
• Dispute handling
• Fraud protection

What Intermediaries Cost

• Fees on each payment
• Delays, especially across borders
• Opening hours and cut-off times
• Account rules can exclude people
• Power to freeze or reverse payments

Early Attempts At Digital Cash

• 1980s: David Chaum and DigiCash, with a central issuer
• 1997: Adam Back's Hashcash, costly puzzles against spam
• Late 1990s and 2000s: b-money and bit gold proposals
• Missing piece: agreement among strangers without an owner

31 October 2008

• Satoshi Nakamoto posts a nine-page paper
• Title: Bitcoin, a peer-to-peer electronic cash system
• Goal: payments without a trusted third party

Many Copies, One History

• Many nodes each keep the full ledger
• Transactions are grouped into blocks
• Each block holds a fingerprint of the previous block
• Rewriting history breaks every later link

[Block 1] <- [Block 2] <- [Block 3]
  hash A      prev: A      prev: B
              hash B       hash C

When A Blockchain Fits

• Participants who do not trust one another
• No single party should control the record
• Open access matters
• If one trusted owner exists, a database is simpler

Recap

• Money is a shared belief used for exchange
• Ledgers record ownership
• Copying makes digital cash hard
• A ledger keeper blocks double spending
• Blockchains share that keeper's job across many nodes

Next Week: Cryptography You Need

• Hash functions as digital fingerprints
• Public and private keys
• Digital signatures and Merkle trees
• Short Python demos

Questions And Exercise

• Build ledger.py with three balances
• Make an overspend raise an error
• Write three sentences about the referee in your code

def pay(sender, receiver, amount):
    if balances[sender] < amount:
        raise ValueError('insufficient funds')
    balances[sender] -= amount
    balances[receiver] += amount
    history.append((sender, receiver, amount))