Inventing Bitcoin by Yan Pritzker

The Technology Behind the First and Only Truly Scarce and Decentralized Money Explained

TL;DR

Chapter 7

ACCOUNTS WITHOUT IDENTITY

We have built a distributed ledger with no central authority, a mining lottery system for selecting who writes to it, a system for rewarding good miners and punishing misbehaving ones, a way to adjust mining difficulty to ensure a consistent issuance schedule and reduce conflicts, and a system for checking the validity of the chain by looking at the cumulative proof of work and transaction history.

Now let’s deal with identity. In a traditional banking system, you send money by identifying yourself to the bank. You present an ID and pin code at the ATM, or type a username and password into an app. The bank ensures that no two entities share an identity.

Since we now have no central party to keep track of identities, how can we open accounts in our new Bitcoin based financial system? How can we address Satoshi’s goal of removing identity from financial transactions, to avoid identity theft and trusting central parties with our information? How can we ensure that when Alice announces she wants to pay Bob, that it's really her and that she has authority to move those funds?