by Zain Jaffer
It has been sixteen years since Satoshi Nakamoto published his Bitcoin white paper [https://bitcoin.org/en/bitcoin-paper]. Yet most people still do not understand what blockchains and crypto are. I do not blame them. The space is too filled up with geeks and nerds spewing out lots of jargon that befuddle ordinary folks.
Instead let me give you a few lay friendly examples.
Say you want to check if someone has made a mortgage payment or is single or married. You could go to a centralized repository of information like City Hall to check if that is true, but often you can also ask around, more than one person about the civil status of an individual. Same is true of property and mortgage payments. You can check the centralized repository (City Hall or the County Registrar), but you can also ask people in that area. Maybe they would know. Maybe they won’t.
Now imagine those people are computer servers that hold the synchronized updated information about birth and marriage records, or land titles. Each of these servers, which may be located anywhere around the world, carry the same information because every few seconds (or milliseconds) these all synchronize. So that they won’t have incomplete information like the people you ask. Rather any server you ask, anywhere around the world, carries the same updated information on mortgage payments, birth and marriage certificates, and land titles.
Most of those information are time stamped and are sequential. So if Bob paid Alice and then Alice paid John, the record need to show that time sequence of changes. This is why these are called blockchains. The data is in blocks and are sequentially chained together.
In effect all of those servers globally are carrying synchronized distributed ledgers.
But what about hacks you say? Well if you ask a thousand people around a neighborhood if John is still single, chances are not everyone will know him or have updated information about him. But these servers, sometimes called validators or miners (depending on the proof scheme they employ) make it their business to keep updated records. So asking Server 1 or Server 1001 should yield the same result, that John is single or married, or has made a mortgage payment this month, or owns the lot near 1st and 3rd.
Typically when we ask around, just like detectives, we rely on a preponderance or the commonly held view. If the commonly held view or records of all the blockchain is that John has made the April 2024 payment on his mortgage, then that is what will be taken as fact.
But how does that prevent hacks? Well each server is incentivized by earning crypto, which is worth something. If a server owner wanted to perpetuate a fraud, that does not match what the other servers are stating, then his server would be an outlier. Since a requirement to operate a server or earn crypto is to maintain that synchronicity of information records with other servers, if your server “loses step” you forfeit the crypto earnings, and get booted out of the blockchain network.
In effect, Satoshi Nakamoto implemented a behavioral incentive scheme in his Bitcoin white paper that ensures that each blockchain server operates in lock step to keep accurate and faithful records. He knew that in order to replace trusted third parties like banks and other groups, he would need to have a scheme wherein people who operate these servers are like contractors who make money if they ensure that the blockchain keeps its records faithfully.
In computer science there is such a thing as a Byzantine General’s problem. How do you know if you have a traitor in your midst? How do you know if a server has been compromised? Nakamoto’s answer was simple. He simply paid the servers income so that at least a majority rule of compliant servers would prevent hackers from taking over.
In a blockchain, as long as the majority of the servers are not compromised, the system will use the majority held records as the correct ones. To hack all of those would take a lot of expensive computing power, especially if there are several thousand of these running around the world.
So think of blockchains and distributed ledgers as a set of separate records of all transactions, wherein the bookkeeper servers are incentivized to do their job properly, else they will lose their income from the blockchain crypto and get booted from the network.
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