Bitcoin White Paper: 1. Introduction

Commerce on the Internet has come to rely almost exclusively on financial institutions serving a strusted third parties to process electronic payments. While the system works well enough formost transactions, it still suffers from the inherent weaknesses of the trust based model.Completely non-reversible transactions are not really possible, since financial institutions cannotavoid mediating disputes. The cost of mediation increases transaction costs, limiting theminimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for non-reversible services. With the possibility of reversal, the need for trust spreads. Merchants mustbe wary of their customers, hassling them for more information than they would otherwise need.A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.

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