Many people remain skeptical about Bitcoin, believing that it is a scam or Ponzi Scheme. Next time you encounter a doubter, talk to them about the Byzantine General Problem.
The Byzantine Generals Problem is a game theory problem. It describes the difficulty decentralized parties have in arriving at a consensus without relying on a trusted central party. In a network where no member can verify the identity of other members, how can members collectively agree on a certain truth?
The game theory analogy behind the Byzantine Generals Problem is that several generals are besieging Byzantium — an ancient Greek city that later became Constantinople and is now present-day Istanbul. They have surrounded the city, but they must collectively decide when to attack. If all generals attack at the same time, they will win. If they attack at different times, they will lose. Separated by distance with no modern means of communication, they need consensus to stage a successful assault. The generals have no secure communication channels with one another. Any messages they send or receive may have been intercepted or deceptively sent by Byzantium’s defenders. How can the generals organize to attack at the same time?
Money and the Byzantine General’s Problem
Money is a prime example of the Byzantine General’s Problem. How should society establish money that all members of a society can trust and agree upon? In some ways, gold solved the Byzantine General’s Problem. It was trusted across decentralized systems, such as international trade. However, its weight and purity remained unreliable and still do to this day. The failure of gold to completely solve the Byzantine General’s Problem resulted in trusted central parties, usually governments, taking over the issuance of money. Centralized systems did not solve the Byzantine General’s Problem. Governments constantly violated that trust by changing the money.
For money to solve the Byzantine General’s Problem, it would have to be verifiable and trustless. It was not until the invention of Bitcoin that this was achieved.
How Bitcoin solves the Byzantine General’s Problem
History has provided us with several clever ways to verify the truth, including but not limited to — signatures, official seals, blue social media checkmarks, and secret handshakes. The recent development of Bitcoin and the blockchain is the theoretical solution for a group of skeptical generals to reliably send each other messages and coordinate a successful attack, even if they have never met before. For you and me, it’s an instant and verifiably honest way to send money.
Bitcoin was the first realized solution to the Byzantine General’s Problem concerning money.
To achieve this in a trustless manner, Bitcoin uses a blockchain — a public, distributed ledger that stores a history of all transactions. In the Byzantine Generals analogy, the truth that all parties must agree to is the blockchain. If all members of the Bitcoin network, called nodes, could agree on which transactions occurred and in what order, they could verify ownership of bitcoin and establish a functioning, trustless money without a centralized authority.
Thus, members of the Bitcoin network can agree on the state of the blockchain and all transactions therein. Each node verifies for itself whether blocks are valid based on the Proof-of-Work requirement and whether transactions are valid. With this, There is no need to trust other members of the Bitcoin network. Thus making Bitcoin a trustless system without the need for a centralized system.
Bitcoin’s Proof Of Work Blockchain
Satoshi’s decision to have the blockchain operate through Proof-of-Work solves this problem with math, encryption, and computing power, rather than outside third parties assigning blue checkmarks or secret handshakes. In the words of Satoshi from the original white paper, the transactions are “computationally impractical for an attacker to change if honest nodes control a majority of CPU power.” To rephrase, the more people involved in the system, the more trusted the network of transactions. The white paper fully explains this.
If you are curious, here is Bitcoin’s original white paper
By employing a proof of work mechanism, Bitcoin overcame the Byzantine general’s problem and established a clear rulebook for the blockchain. Therefore, the Byzantine general’s problem is solved by miners who are similar to generals in Satoshi’s version of the blockchain. Each node is responsible for validating transactions, which are similar to messages delivered to the generals. Bad actors (for example, hackers) who aim to steal messages or harm the network can be considered the enemy. Hackers (i.e., spies) cannot readily attack the blockchain because messages use cryptographic security.
Satoshi makes things more probable by putting miners in a competition to validate the blocks. By solving a riddle using their computational power, known as the hash rate. This makes it more decentralized because no single miner can receive all of the rewards by monopolizing validation. When the miner who has solved the puzzle broadcasts the solution to the network, all other miners must validate or deny the value if it is false.
Satoshi’s incredible invention is the closest system to solving the Byzantine General’s Problem in the world of finance. It is nearly perfect. With the current fiat expeditions to nearly zero status, I say we have bitcoin as the closest shot to almost the perfect monetary status that we can ever have!