Bitcoin Theory: Key Takeaways from the Bitcoin White Paper Calculations and Conclusion

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It is more economically viable for people, even if they are dishonest in nature, to start following the rules.

We have electronic transactions without relying on trust. Not because of an anarchist system, but because it is in the economic and rational interest of each node not to cheat.

-Dr. Craig S. Wright

The latest episode in the ten-video series Theory of Bitcoin: The Bitcoin Whitepaper covers the Calculations and Conclusion sections of the Bitcoin Whitepaper, with two main themes emerging: Trying to cheat the system is impractical, and Bitcoin is first and foremost. a systemas reflected by Dr Wrights two quotes above.

For a more detailed look at the final sections of the whitepaper, I’ve shared my main takeaways from the conversation between Dr. Wright and Ryan X. Charles below.

Only short-term attacks are possible (but still very unlikely)

The Calculations section of the white paper explains why it is impractical to trick the system, and Dr. Wright points out right off the bat that only short-term attacks are possible, but still extremely unlikely.

By short term we mean a malicious node that can double spend before anyone notices, get the goods, and quickly run away. This attack can only be short term because the channel is public and the nodes are not anonymous (we’ll get to that later).

Dr Wright explains that if a malicious node performs a 51% attack and does it for a lot of money, then all honest nodes will exclude that malicious node because honest nodes are incentivized to do so. There might be a short window where the malicious node tricks some SPV nodes as they will see the longest string. If the attacker has 51%, the longest chain will appear to be the attackers chain, until the police kick in the attackers door and stop whatever is happening.

This will happen in less than 100 blocks, each time, confirms Dr. Wright.

An attack can only occur against SPV

Dr. Wright also points out that it is only possible to make an attack against the SPV. He explains that if you are a merchant and run a full merchant-type implementation, you will see all the attack chains anyway. The merchant will see the attacker using a lot of hash power and he will be able to see double spending attempts. The merchant will have records of all of this, and they will know how to stop sales immediately.

This is always if you have an SPV channel and the trader also or the other participant is on SPV, then someone can send a potential fake channel in which you get a different version of a transaction, explains Dr. Wright. .

KYC rules apply

Let’s not forget that KYC rules apply to Bitcoin transactions and once you have gone over a certain amount of money there are KYC rules. Therefore, things like double spend and alternate chains only apply to small instant transactions.

Think of a snack machine. An attacker should be focusing on something that works like a snack machine where you can’t take back the goods, something where the transaction is instantaneous. An attacker may forget to get away with something expensive like a car, because if you buy an item for more than $ 500, for example, you don’t complete that sale in seconds. There are KYC rules to follow.

Dr. Wright points out that if it was a multi-million dollar transfer, like you would buy a house, there is no possibility of a double-spending attack. By law, with this type of large transaction, you have a 48 hour window where you can go back, for example.

Nodes are not anonymous

You are known and you are not in hiding, the nodes are de-anonymizing and that is the whole point of POW, to make sure you cannot hide, says Dr. Wright.

He goes on to comment on the anonymity mindset that others in the digital currency and blockchain space tout, a version of the world where the law doesn’t apply. Dr Wright says this is not the way the world works. It is an alternate reality. This is not the way traders operate. It is not in the law. It’s a completely stupid concept, it’s childish, he says.

Attacks on Bitcoin would only be on money the attacker spent before the attack, and not on someone else’s money. In other words, he’s an attacker spending his own payments twice. This is what the attacker would be limited to, and he would expose his malicious behavior due to the non-anonymous nature of the nodes.

Only nodes can defraud you and its audience and anyone can audit it. So how do you keep the knots honest? Well, anyone can watch, adds Dr. Wright.

An attack is never a good investment

The math and calculations cited in the white paper prove that an attack is never a good investment for a malicious node. It would be incredibly difficult to carry out an attack for all of the reasons listed above. It is simply a waste of time and money.

It would cost a lot of money to attack, while endangering your infrastructure, potentially billions of dollars of investment could be taken. It’s more economically viable for people, even if they are dishonest in nature, to start following the rules, says Dr. Wright.

Conclusion

Reaching the last section of Charles and Dr Wright’s Bitcoin whitepaper line by line, five main points are highlighted by the pair and begin well with Dr Wright’s response when Charles asks them to define Bitcoin.

What is Bitcoin?

First of all, we have electronic transactions without relying on trust. Not because of an anarchist system, but because it is in the economic and rational interest of each of the nodes not to cheat, he says.

He points out that nodes are instantly auditable, evidence is provided, and they cannot change that evidence.

Bitcoin is a public system

Double spending has been the big deal with digital currencies in the past and Bitcoin is putting an end to this problem by making it all public.

Bitcoin is a peer to peer network not of every user, but of the nodes where they distribute and anyone can see the entire transaction history. These transactions are public and difficult to modify from an IT perspective.

Bitcoin is an economic system

Bitcoin is an economical system because of the way it is incentivized. Minors don’t cheat because it doesn’t make economic sense.

Bitcoin is above all an economic system that uses cryptographic algorithms, summarizes Charles.

Bitcoin is a simplistic system

Dr Wright points out that Bitcoin is a simplistic system and that miners are a small global network. In all respects the system is quite simply simple. The whole network. The network is not 17 layers, there are not too many hops, the nodes work with very little coordination and therefore the system works better.

Dr. Wright uses the jar of marbles analogy here if people independently guess the number of marbles in a jar, the median of their answers is more accurate than if they all coordinated and made a guess together.

There’s no need to pre-plan all of this, no need to say this is how you log in, they don’t need to identify their next jump, the miners will go there and it’s in. their economic interest in connecting to other miners in the most efficient manner, explains Dr. Wright.

Bitcoin protocol is set in stone

The Bitcoin protocol has always been designed to be set in stone. Everything is automated. The nodes execute the protocol and the magic happens. Nodes do not vote on protocol rules because they are already determined, rules such as valid scripts, structure of a transaction, etc. What the nodes vote on, I have this block first and therefore I rely on that one.

Before concluding, Dr Wright points out that the protocol still includes the law and that Bitcoin is not encrypted, it is purely a ledger whose history cannot be changed. You can make a change, but you can’t delete something or change its history, and the general ledger is publicly available for everyone to see.

Final thoughts

After completing this Theory of Bitcoin series, I cannot stress enough that even just reading the Bitcoin whitepaper (which will take a lot less time than watching these videos!) Will open your eyes to what Bitcoin is for. born, much more than a store of value. Simply put, Bitcoin is the innovation of a lifetime.

New to Bitcoin? Check out the Bitcoin for Beginners section of CoinGeek, the ultimate resource guide to learn more about Bitcoin initially envisioned by Satoshi Nakamoto and the blockchain.

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