Theory of Bitcoin: The Bitcoin Whitepaper ‘The Third Section: Timestamp Server’ key takeaways

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Contrary to what Core will tell you, you don’t need everyone verifying every transaction. You need a way to verify it.

Humans form hierarchies. I’m sorry, but it does not matter how you construct your society. We form hierarchies…if you look at the only systems that work, they are all hierarchical.

– Dr. Craig S. Wright

The fifth video in the Ryan X. Charles’s Theory of Bitcoin: The Bitcoin Whitepaper series with Dr. Craig Wright takes us through the third section of the Bitcoin whitepaper which is dedicated to the timestamp server. Dr. Wright points out at the beginning of this episode that even though he left it “unfleshed out,” one of the most important sections in the Bitcoin whitepaper is the timestamp server. But what is a timestamp server anyway?

Defining timestamping

Dr. Wright describes a timestamp server as “a way of proving that something occurred at a particular time,” for example a payment or the execution of a contract. “Timestamping is actually an incredibly valuable part of most of what happens on earth,” he said.

Timestamping underlies a lot of commerce and has been doing so for decades. Dr. Wright cites timestamping within the UNCITRAL provisions for electronic commerce from 1996 and mentions how notaries keep records in addition to physically stamping things. He explains how all of the SWIFT system involves timestamping—credit cards, interbank transfers, etc.

SWIFT is one form of EDI (electronic data interchange) and Dr. Wright points out that Bitcoin can replace this system. In fact, some of the early areas Dr. Wright patented include doing EDI over Bitcoin protocols. If we put EDI on Bitcoin, the technology can replace SWIFT and transactions would be automatically timestamped, ordered and instances of fraud greatly reduced.

The distributed timestamp server is one of the greatest innovations of Bitcoin

Existing timestamping systems are based on PKI (public key infrastructure) and if a PKI system gets hacked, there are multi-points of failure. The problem with PKI is that we have a single, centralized server that we can’t distribute. With PKI we can get certification, but it’s not publically time stamped, rather its privately time stamped. So how can you trust it?

With Bitcoin, we have a distributed timestamp server and therefore a better security model. If we log when a key gets revoked on the blockchain, we know the exact time when it happened. If there’s a compromise, instead of all the certificates being compromised as they would with a PKI system, we know the exact time and can simply re-issue. The contracts that were stamped before the compromise remain secure and the compromise is contained, its limited in time. If we don’t have the time logged and someone compromises a certificate, they comprise the certificate both back and forward in time.

The nodes (miners) are a distributed timestamp server

“Contrary to what Core will tell you, you don’t need everyone verifying every transaction. You need a way to verify it,” Dr. Wright said. He also points out the requirement of having fixed rules for the system to run properly.

He goes on to explain that there are two different types of “distributed” with Bitcoin. The full nodes are distributed because there’s more than one full node. Block headers are also distributed, but far more widely than the distributed timestamp server because the nodes running simplified payment verification (SPV) wallets distribute block headers and there are more of them.

The security model of Bitcoin actually requires SPV nodes to be a large number of people all over the world with these block headers because the more people who have the block headers, the more secure the system will be.

Proof of work & competition

Another major innovation of Bitcoin is competition amongst the nodes. The ability to do proof of work is actually proof that the full nodes have invested into the network and “that’s what it’s about,” explained Dr. Wright.

Proof of work allows the full nodes to coordinate (not including SPV nodes). There are a small number of full nodes and this “core” of Bitcoin is effectively a peer to peer network, but not a huge peer to peer network because problems would eventually develop, such as coordination challenges. Therefore, the network must be small enough and all the nodes must trust each other. But how do they trust each other? Well, they have to invest money.

“The proof of work aspect is I have to invest and advertise. This is not the average user on the network. This is the competitive process between each individual in the node peer network,” Dr. Wright explained.

It’s a “peacocking principal,” Dr. Wright said. Nodes signal. Think of buying a used car—you’d trust the salesman who has a big, shiny lot because it’s obvious he’s put in a huge investment, and you know where you could find him if there are any problems. Compare this to the salesman on the street corner who could disappear overnight…which salesman are you going to buy from?

“We have 10 minutes and we want to get a small group to agree on the order of transactions and that’s the vote. We’re honest, we’re saying that’s true. But remember, anyone can come along and audit this. And anyone can contest it in court,” Dr. Wright pointed out.

Not all nodes are created equal

The idea that not all nodes are created equal is embedded in the economics of Bitcoin—there is a hierarchy of success amongst the nodes. Other chains such as BTC and ETH reject the hierarchy, and this is one of the reasons why their systems do not function properly.

Dr. Wright actually dislikes the idea of equality in general. He believes we need to have prestigious schools and to give less fortunate children the opportunity to mingle with wealthy and educated people to escape poverty. “We don’t want a world full of mediocre,” he said. Some will be better than others at certain things.

“Humans form hierarchies. I’m sorry, but it does not matter how you construct your society. We form hierarchies…if you look at the only systems that work, they are all hierarchical,” Dr. Wright explained.