This latest installment of “Theory of Bitcoin” focuses on two things that most everyday people don’t give much thought to, yet are of great importance. Those things are timestamps and proof of work. Even if you think you know all about these concepts, watch this video to check – you might be surprised.
As always, this series of in-depth conversations between Bitcoin creator Dr. Craig S. Wright and Ryan X. Charles of Money Button/Fabriik provide valuable insights into how and why Bitcoin was created. There are concepts you are learning for the first time, and others you hadn’t fully thought about. Some you may have misunderstood or misled.
The first half of the episode looks at timestamps. Why is it so important to know when something happened? And perhaps more importantly, how can you verify that in a way that everyone can verify and trust?
Contracts require a timestamp as it is essential to know when they were executed. While computers themselves are capable of timestamping events, there are always ways to change information – at least for non-experts. Even for experts, methods used in the past are not 100% reliable.
Dr. Wright explains several methods used over time. There are human notaries who follow specific rules, such as using physical books that are bound so that pages cannot be removed or added. Changes or amendments to information in the book may be made, but there is a record of those changes. No information is deleted.
The problem here is the limited number of reliable paper copies and the notaries themselves (they are human and mortal after all). That is difficult even in a small local area, but impossible in a global, digital economy. We needed a way for computers to timestamp an event, distribute that information to all potential participants, and provide a reliable means of verifying it.
It’s a harder problem than most realize, and for a long time even computer scientists thought it impossible to solve.
Bitcoin solves this problem. Dr. Wright explains how the whitepaper explains the basics of this functionality, but doesn’t go into detail on how. The model and diagram used in the Bitcoin whitepaper is, as some have noted, simplistic and not necessarily scalable.
Enter BSV and SPV. Like dr. Wright says, Bitcoin realizes that its block headers can be distributed to all participants on the network as part of the transaction process — and are therefore a convenient way to perform distributed timestamping.
Therefore, it is not necessary for every Bitcoin user to validate everyone else’s transactions in order 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 reliable enough. And the more users there are, the more reliable it becomes.
A hash of an entire transaction block could perform a similar function, but it doesn’t scale. Block sizes should be kept to a small size, as we have seen in BTC.
SPV (simplified payment verification) is described in the Bitcoin whitepaper as a means for Bitcoin to scale to the size it needs to be usable. Until recently, however, it was not properly implemented anywhere. It requires queue coordinators, messaging, network listeners, and it must 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 I patent a lot.”
He describes how the existing public key infrastructure (PKI) encryption is flawed in that it cannot provide a correct timestamp – single, central timestamp servers do the job to some extent, but if a key or certificate is compromised, it jeopardizes everything that signed with those credentials. forever, past and future. Bitcoin allows 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 problem.
There’s more to Proof of Work than you think
The conversation in the second half is about concepts around ‘proof of work’. There’s the “work” of processing machines 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 get all the nodes on the network to say, ‘I’m here, I’ve invested in the network. I have more hash power than you, therefore Bitcoin is more secure.’”
Block-seeking processing nodes – which, like Dr. Wright reiterates, the only real nodes are – competing with each other, both in hashing power and reputation. POW can therefore also mean “investing and advertising”. The size of the node network in terms of peers is relatively small, but their operators’ investment in the network (in terms of money, effort, expertise) and their professional reputation are enough to make Bitcoin a reliable timestamp.
Charles and Wright use some interesting analogies here, such as living in an expensive city to show your commitment, getting a degree from a prestigious university even though you could gain the same knowledge from a stranger, and why you’re spending the expensive year might take wine to a party and drink the cheaper year at home, even though the difference in actual quality is barely noticeable. As Charles says:
“Signaling is really important… One of the reasons I like living in San Francisco is that it’s expensive, and it’s proof of seriousness. It indicates that I am literally investing money. It’s a way to buy credibility. You could say the same about London and quotes like that, which are expensive and, in a sense, prestigious.”
For years, computer scientists tried to solve the timestamp problem using only computer science concepts. It took economic and real incentives (as well as some game theory) to find that solution. It’s another reason why inventing Bitcoin required interdisciplinary expertise. And while an interdisciplinary approach would benefit many areas, Dr. Wright that “(being interdisciplinary) makes you less suited as an academic.” It wasn’t always this way, and some are only just beginning to realize why it must return.
As usual, you’re guaranteed to come away with something new to talk (or tweet/twet) about with each “Theory of Bitcoin” episode. You may even start to know too much and start arguing more with others in the digital asset industry. Whatever happens, watching this series will leave you much better equipped to deal with those situations.
Check out the Theory of Bitcoin: White Paper YouTube playlist here to watch previous episodes of Theory of Bitcoin.
See also: dr. Craig Wright discusses “The Importance of Bitcoin as a Timestamp Server” on CoinGeek Live
New to Bitcoin? Check out CoinGeek’s Bitcoin for beginners section, the ultimate resource guide to learning more about Bitcoin – as originally conceived by Satoshi Nakamoto – and blockchain.