Let’s consider the motivation for why something like Bitcoin exists:

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. - Satoshi Nakamoto

He worked on Bitcoin during the Great Financial Crisis as evident by posting the whitepaper on 31st October 2008 and the code on 3rd January 2009. Banks were at the heart of this crisis. Briefly, they sold mortgages to citizens with bad credit ratings with the expectation that if the price of houses kept going up, then both parties could profit. The profit did not materialise when the housing market’s bubble burst in 2006 and instead it triggered defaults as the initial loans were worth more than the purchased house. The toxic loans and risk spread throughout the markets (i.e. securities, pension funds) and nearly took them down. As Satoshi Nakamoto identifies, this was all possible because banks can lend more money than they held in deposits and in a way they are effectively gambling with our deposits. Even worse and to Satoshi Nakamoto’s frustration, the banks got away with it as national governments bailed them out:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks. - Genesis Block

Satoshi Nakamoto was clearly versed in the Cypherpunk’s Manifesto1 which focuses on how cryptography can be used to remove power-imbalances in society.

We can speculate that during the financial crisis, Satoshi Nakamoto spent time working out how cryptography can build a new global currency that empowers the individual and not any single nation state. In spite of 30+ years research, Satoshi Nakamoto was the first to work out how to replace a central authority (currency issuer) with a peer-to-peer network. His discovery led to the blockchain which is a cryptographic audit log that lets anyone compute the contents of a database and Nakamoto Consensus that lets financially motivated peers compete to update the database (and thus remove the need for any appointed authority).

For this homework, we focus on how cryptography provides integrity to the blockchain, how the database is structured and how transactions are processed.