Skip to content

Bitcoin and blockchain

3Blue1Brown has one of the better explanations: Ever wonder how Bitcoin (and other cryptocurrencies) actually work? (YouTube). One pundit even referred to this technology as “triple entry accounting” and hailed it as one of the greatest innovations evva’ !!

  • Start with a public ledger where people can note transactions between themselves. This can be tallied to figure out who owes and who is owed.
  • Add public key encryption to entries so the authority of a ledger entry can be affirmed.
  • Add broadcasting so everyone has a copy of the ledger.
  • Add blocking so ledger entries come in pages that can be encrypted by finding a key via brute force methods to yield a specified checksum.
  • These blocks form a linked chain with the links a part of the encryption and also include a ‘payment’ to the miner for doing all the work.
  • Assign credibility to ‘miners’ who have encrypted the most blocks. This credibility based on the longest chain is used to resolve disputes if there are ledger differences.

The video does a good job describing the issues and their solutions in creating a transaction value accounting system that is public, open, secure, and reliable. The video also notes the inherent weakness in the system when it comes to scaling up to real world transaction volumes. 

This is one of those uses of technology that has a lot of people excited but isn’t really ready for prime time. Yet. The ideas and methods are now out there and that will provide experience in seeing how they work, how they can be made better, and just exactly where they are most suited.

This seems to be a good example fitting in with the ideas described in The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee. I’ll likely have more on that book when I’ve finished reading it and have had time to think about what it is saying to me.