How Bitcoin Solves Byzantine Generals Problem

Imagine for a minute that four generals commanding four armies surround a city. They are geographically distributed. If they all attack together, victory is guaranteed. However, if coordination is not precise, they are doomed to fail.

Communications can be intercepted and tampered with.

Other generals may have ulterior motives that are impossible to detect. There is no central authority to hold this alliance together.

How do they effectively coordinate their efforts to achieve success?

This thought problem, in a nutshell, is known as the Byzantine Generals problem. This is the problem that Satoshi fixed when Bitcoin was created.

If nobody controls Bitcoin, then how the heck does it actually work?

Simply put, a distributed network of miners and nodes creates a consensus web that allows for transaction processing without double-spending.

Through game theory, it makes cooperation more profitable than cheating. Rules are upheld through decentralization, keeping the network on track without a central authority.

Let’s dig into how this actually works.

1. A Trustless System You Can Trust

2. Proof of Work

3. Rules Without Rulers

The way money has evolved throughout the years demonstrates a millennia of humans attempting to capture human effort, time, and value through physical objects. In doing so, people can focus on what they’re good at without bartering goods for goods.

Imagine you’re the best chicken farmer in the world, but you really want to buy a car. The car salesman might be a vegetarian. In that case, it doesn’t matter how many chickens you offer them for a car; they’re just not interested.

Maybe the car salesman could take the chickens with the expectation to trade them for something else. Or the chicken farmer could trade his chickens for some delicious vegetables. Still, these options add complexity and extra steps to the transaction.

Not to mention that chickens eventually die, and vegetables inevitably get moldy and gross. There’s got to be a better way, right?

This is essentially how money came into existence. It eliminates the need for a “double coincidence of wants”… or the chicken farmer’s problem with the vegetarian car salesman.

Gold has served as money for centuries because it is hard to get. But it has also failed repeatedly because moving around is difficult and inevitably becomes centralized. Bitcoin solves this problem even though most gold bugs don’t generally recognize it or understand Bitcoin or money.

Like a dollar can be broken down into cents, Bitcoin can be divided into smaller units called Satoshi’s. 

This extreme divisibility facilitates microtransactions and makes Bitcoin adaptable to everyone’s economic needs, from nation-states and sovereign wealth funds to individuals looking for coffee or a slice of pizza with Satoshis. 

In ancient Rome, emperors would collect their taxes. Once the gold was centralized, they would melt and dilute it slightly. Over decades, “ever so slightly” starts to add up quite a bit!

Hyperinflation ensues, and society breaks down into chaos.

The same could be said for what is happening today. Banks centralized the gold and issued paper notes as a proxy for everyday use.

Government overspending ended with abandoning the gold standard in 1971 when President Richard Nixon refused to let the French government convert their dollars into gold.

Ever since the dollar supply has been controlled at the whims of man. From the Federal Government, perpetual debt-fueled spending to the Federal Reserve’s ever-changing money printing trickery, the money supply has grown, and purchasing power dwindled.

Bitcoin is different. No group or institution actually controls Bitcoin — it is maintained by consensus through a distributed network of nodes and miners. The Bitcoin halving guarantees scarcity of the supply in was gold can’t.

When a transaction is sent, it gets broadcast to the network of nodes and miners. By paying transaction fees to the miners, the network incentivizes honest participation.g

It also manages transaction volumes through a floating fee based on supply and demand for the limited block space miners have to process transactions.

Miners process transactions through a process called 'Proof-of-Work.' Nodes maintain the code base of rules and a copy of the ledger.

Combining these two participants allows the network to remain in sync without a centralized authority.

Let’s see how it works!

Work is all that matters!

Bitcoin miners process transactions by constructing a new block of data while simultaneously racing to complete a mathematical puzzle using computer power called hashing.

Whoever solves it first gets to add that block to the Bitcoin transaction history chain.

The more blocks created after a transaction is processed, the more finality you’ve achieved in your payment or receipt of Bitcoin.

This is because it would take equivalent work to undo those transactions.

Imagine a bottomless pit being filled with sand. With every new load, it gets a little deeper and a little harder to get that older sand back out until it essentially becomes impossible.

This is similar to how Bitcoin transactions work. To be safe, many wallets will only let you withdraw funds after 6 or so subsequent blocks have been processed.

This is in case a block gets orphaned. Orphan blocks happen when two miners solve a block at the same time.

Though it happens rarely, it’s pretty easy to solve this issue. Whichever miner solves the next block gets to choose which previous block to build the chain on.

Proof-of-work for the WIN!

The longest chain will always be the truth in Bitcoin because you must have had the most proof of work to have the longest chain.

The rule set for Bitcoin is both voluntarily adopted and distributed. It is maintained by an interconnected network of nodes that run the Bitcoin code and keep an updated copy of the ledger.

Since the code base is open source, anybody can make changes anytime. Still, changes must be adopted by nodes voluntarily.

All updates must also be fully backward compatible, meaning I don’t even have to update my node to stay in consensus with the latest versions of Bitcoin Core.

This makes sweeping changes to the network all but impossible. Imagine trying to herd tens of thousands of invisible cats in cyberspace that don’t know or trust you.

This is how Bitcoin has remained relatively unchanged since 2009. Though numerous upgrades have been published, they must respect core tenants for adoption.

Core tenants like the 21 million hard cap, block size, and block time. Even an alliance between exchanges and miners couldn’t change Bitcoin independently.

The contentious upgrades proposed by this authoritative group result in a hard fork, or a completely new chain, now known as Bitcoin Cash.

Bitcoin Cash now sits in ruin, a fraction of Bitcoin’s proof of work power and economic energy. This is a testament to the power of the Bitcoin network.

Satoshi intended to create a durable network lasting for generations, not a few cycles. Many alternative cryptocurrency will advertise their characteristics as improvements on the Bitcoin protocol; faster block times, for example.

But they all inevitably have tradeoffs. Faster or larger blocks mean data accumulates at a much faster rate.

To date, Bitcoins' entire history only takes up about 600 GB of data, meaning anybody can easily and inexpensively run their own node.

When blockchains grow too fast and normal people can’t run nodes anymore, they quickly become centralized.

The cost of a 51% attack on Bitcoin Cash is relatively low.

Failed chains like Bitcoin Cash routinely experience 51% attacks where people can pay to overpower the network and process fraudulent transactions, known as double spends.

Other “Proof-of-Stake” chains centralize naturally as the stakers earn yield to stake their coins. The more you stake, the more you make, inevitably snowballing control of the network into the biggest bagholders.

Bitcoin is as much of a discovery as it is an invention — it’s a new form of property. Its technology is not new or even innovative. It’s the combination of Bitcoin’s characteristics that make it unique. That unique combination also allowed Satoshi to solve the Byzantine General problem, allowing for consensus without central control.