This latest episode of “Theory of Bitcoin” focuses on two things most ordinary people don’t think much about, yet have major importance. Those things are timestamping, and proof of work. Even if you think you know everything about these concepts, watch this video to check—you might be surprised.
As always, this series featuring in-depth conversations between Bitcoin creator Dr. Craig S. Wright and Money Button/Fabriik’s Ryan X. Charles offers valuable insights into how and why Bitcoin was created. There are concepts you’re learning for the first time, and others you hadn’t considered in full. Some you might have misunderstood, or been misled on.
Bitcoin did not invent the blockchain. Rather, it added competition to it. Learn more about the second section of the white paper, "Timestamp Server", in our continuing interview series with the inventor of Bitcoin, Craig Wright.https://t.co/179fvCHs2W
— Theory of Bitcoin (@theoryofbitcoin) November 16, 2020
The first half of the episode looks at timestamping. Why is it so important to know when something happened? And perhaps more importantly, how can you verify that in a way everyone can check, and trust?
Contracts require timestamping, since it’s vital to know when they were executed. While computers are capable of timestamping events themselves, there are always ways to alter information—at least, to the non-expert eye. Even for experts, methods used in the past aren’t 100% trustworthy.
Dr. Wright explains various methods that have been used over time. There are human notaries who follow specific rules, such as using physical books bound in a way that pages cannot be removed or added. Changes or alterations to information in the book can be made, but there is a record of those changes. No information is deleted.
The problem here is the limited number of trustworthy hard copies, and the notaries themselves (they’re human and mortal, after all). Even in a small local area that’s difficult, but in a global, digital economy it’s impossible. We needed a way computers could timestamp an event, distribute that information to all potential participants, and provide a trusted means to authenticate it.
It’s a harder problem than most realize, and one even computers scientists thought impossible to solve for a long time.
Bitcoin solves this problem. Dr. Wright explains how the whitepaper explains the basics of this functionality, but doesn’t go into depth about how. The model and diagram used in the Bitcoin whitepaper, as some have noted, is simplistic and doesn’t necessarily scale.
Enter BSV and SPV. As Dr. Wright says, Bitcoin realizes that its block headers can be distributed to all participants on the network as part of its transaction process—and are therefore a useful way to perform distributed timestamping.
Therefore it isn’t necessary for every Bitcoin user to validate everyone’s transactions to make a single transaction themselves. With the block headers and Merkle Trees (which Dr. Wright points out are actually called “binary trees, as described by Merkle”), it’s trustworthy enough. And the more users there are, the more trustworthy it becomes.
A hash of an entire transaction block could perform a similar function, but it doesn’t scale. Block sizes would have to stay limited to a tiny size, as we’ve seen in BTC.
SPV (simplified payment verification) is described in the Bitcoin whitepaper as a means for Bitcoin to scale to the size required to be useful. Until recently, though, it hasn’t been properly implemented anywhere. It requires queue coordinators, messaging, network listeners, and it needs to be part of the distributed process. (Note: workable SPV functionality has only just been restored to Bitcoin BSV, with the release of three new software packages by the Bitcoin SV Infrastructure team. You can read more about them here.)
Identity is also an important part of the trust process, and as Dr. Wright says,
“Identity is a separate system, “that’s one of the areas where I have been doing a lot of patenting.”
He describes how existing encryption PKI (public key infrastructure) is flawed in that it can’t timestamp properly—single, central timestamp servers do the job to an extent, but if a key or certificate is compromised, it compromises anything signed with those credentials for all time, past and future. Bitcoin allows for keys to be trusted based on time. Even if a key is compromised, the exact time of the compromise can be verified, and transactions signed with the key before that time can still be trusted. That’s a big deal.
There’s more to Proof of Work than you think
The conversation in the second half moves onto concepts surrounding “proof of work.” There’s the “work” done by processing machines in performing hashing functions to find blocks… and then there’s the “work” of those who build and own the processing facilities.
“POW is how you allow all the nodes on the network to say ‘I’m here, I’ve invested in the network. I have more hashpower than you therefore Bitcoin is more secure.’”
Block-finding processing nodes—which as Dr. Wright reiterates, are the only real nodes—compete with each other both in hashing power and reputation. POW can therefore also mean “invest, and advertise”. The size of the node network in terms of peers is relatively small, yet their operators’ investment in the network (in terms of money, effort, expertise) and their professional reputations are enough to make Bitcoin a trustworthy timestamp.
Charles and Wright engage in some interesting analogies here, like living in an expensive city to signal your dedication, getting a degree from a prestigious university even though you could gain the same knowledge at an unknown one, and why you might take the expensive-year wine to a party and drink the cheaper-year one at home, even though the difference in actual quality is barely noticeable. As Charles says:
“Signalling is really important… One of the reasons why I like living in San Francisco is that it’s expensive, and it’s a proof of seriousness. It conveys that I’m literally investing money. It’s a way of buying credibility. You could argue the same thing about London and cites like that, that are expensive, and prestigious in a way.”
Computer scientists tried for years to solve the timestamping problem using only computer science concepts. It took the addition of economic and real-world incentives (as well as some Game Theory) to find that solution. It’s another reason inventing Bitcoin required interdisciplinary expertise. And while an interdisciplinary angle would benefit many fields, Dr. Wright laments that “(being interdisciplinary) makes you less hire-able as an academic.” It wasn’t always this way, and some are only just starting to realize why it needs to return.
As usual, you’re guaranteed to come away with each “Theory of Bitcoin” episode with something new to talk (or tweet/Twetch) about. You may even start to know… too much, and engage in more arguments with others in the digital asset industry. Whatever happens, watching this series will leave you far better equipped to deal with those situations.
To watch previous episodes of the Theory of Bitcoin, subscribe to the Theory of Bitcoin YouTube channel here.
See also: Dr. Craig Wright discusses “The Importance of Bitcoin as a Timestamp Server” at CoinGeek Live
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.