Hacker News Reader

Comment by educar | Hacker News Reader

I am probably in the minority here on HN but I don't completely grok bitcoin (granted I have not put in much effort to understand it). I have asked many of my techie friends and none of them understand it either - I follow the Einstein (?) principle. If you cannot explain it, you probably don't understand it.

On top of this, there is now Ethereum and DAO which are also completely incomprehensible to me. But the reason for this comment is that I totally blown away that there are people out there who understand it and are willing to fund this to record levels.

The context for this comment is that I ask myself this question about products and startups all the time. Who uses them? Why are they gaining traction and nobody I know even knows about them let alone use them... To conclude, I find all this bitcoin talk very motivational - not everybody needs to understand what you are building. You just need a passionate following of people who do.

View on HN

They're both like databases replicated onto thousands of nodes. All the fancy crypto and mining is just a way of making the replication secure, so every node has the exact same data even though it's on a public network and nobody knows who's running the nodes.

On Bitcoin, there's one table with two columns: username and balance. You have read access to this table and you can call a stored procedure that transfers some of your balance to another user.

On Ethereum, you have developer rights. It has the same username/balance table as Bitcoin, but you can also create your own tables and write your own stored procedures, which can be called by other users.

Of course this is a drastic simplification of both systems, and misleading in some ways, but it's the best quick explanation I've come up with.

I'm getting obsessed with Ethereum because it's amazing to me that, for example, I can write two pages of backend code plus an html/javascript front end, and I've got a crowdfunding system which I can deploy for free, run indefinitely with zero downtime, and have it moving money around without getting anyone's permission at all. (Or it could be an auction, casino, currency or derivatives exchange, vault, etc.)

good explanation! can you provide an example of your crowd funding app?

https://www.ethereum.org/crowdsale

> deploy for free, run indefinitely with zero downtime

So who actually pays for the runtime - is it the work the miners do? If not, what is the mining work used for exactly?

That's how I always understood it. Miners machines do all the operations and for this they are rewarded with bitcoins.

The mining work is used to prove that a certain amount of computational 'work' was done. This work takes a predictable amount of time (in aggregate), and because of that, it can be used as a way to timestamp transactions in a globally serializable way, even in the face of malicious adversaries.

Consider a block chaining system without proof of work: I want to send some bitcoin so I broadcast a signed message to the network saying "send 10 bitcoin to dandare". But let's say I also send another message to the network saying "send 10 bitcoin to <my other address>" at the exact same time.

Now what happens is the chain forks. Some people consider transaction #1 canonical and some people consider transaction #2 canonical, but they can't both go in the same chain because they conflict. So now your blockchain has a split at the end of it, how do you decide which one is the real one?

Well, everyone in the network is incentivized to add their transactions to the 'real' chain, because obviously everyone wants their own transactions to be real. So if either chain gets a small edge in 'realness' everyone will pile into that one, looking out for their own self-interest.

In the absence of proof of work, no chain ever becomes any more 'real' than any other, because there is no effort in adding to the chain. Me with just my laptop can keep extending the one that I want to win indefinitely, and roughly 50% of the time it'll come out how I want.

Proof of work solves this, by making the network 'invest' computational effort to extend a chain. Because it takes enormous computational resources, no single actor can significantly or reliably influence which chain is going to win. And as each additional block is chained on after the one containing a given transaction, it becomes exponentially more difficult for another 'side chain' to catch up.

This means that if you wait until about 3 blocks after the transaction I sent you, you can have a very high degree of confidence that the chain you are looking at is and always will be the canonical bitcoin blockchain. In order for that to become untrue, someone would have to find two consecutive solutions to the proof of work problem in the same time it takes the entire bitcoin network to find 1.

The miners do two things: run your code, and come to a consensus on what transactions happen on the database, in what order.

The consensus work is expensive, and we pay them for it mainly by minting new coins. In effect we're taxing all the coin holders by inflating the currency.

To run a specific transaction, you pay a transaction fee, which also goes to the miners. They could just ignore our transaction, so we pay them a little to run it.

So basically it's the users who pay the running costs of an application. Every time they call a method in a script, they have to include a small payment to the miners.

Generally these payments are pretty small but as computers go, Ethereum is a very expensive one, since every operation or stored byte is replicated on thousands of computers. You're not going to be doing a lot of computation or storing bulk data. But simple business rules are easily affordable.

> I am probably in the minority here on HN

No, HN is generally bad for discussion of bitcoin.

> I have asked many of my techie friends

An introductory whitepaper [1] was written by bitcoin's creator in 2008. That's probably still the best place to start.

[1] https://bitcoin.org/en/bitcoin-paper

A lot of people quote this as the best place to start, but I'd like to respectfully disagree. I don't have a concise alternative, but I found that paper pretty much incomprehensible, and even now with a decent handle on bitcoin it's still pretty opaque.

"there are people out there who understand it and are willing to fund"

These groups may only slightly overlap.

'To understand' something can mean all kinds of different things. You don't really need to understand how smtp/pop work to use email or how https works to be [reasonably] sure your credit card number you're sending over the wire to an online vendor won't be stolen in flight.

Same with Bitcoin. You acquire it, you use a piece of software called 'the wallet' to store it and you either share your 'Bitcoin address' with someone to send Bitcoin your way or they give you their address for you to send the btc to.

That's really it in a nutshell :)

I took some time and read this blog post [1]. It allowed me to explain everything to my friends who asked.

[1]: http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-a...

At the highest level, Bitcoin is relatively easy to understand. There's a lot of additional detail in the communications algorithm and the programmable extensibility embedded in transactions (for instance, how multi-party/escrow/conditional transactions work). But the concept of a proof-of-work-based blockchain can be explained rather briefly.

As a miner, you have access to a pile of transactions that people want to resolve. Take enough of those transactions to fill up a block, based on some rules you want to follow (e.g. prioritize transactions that pay a transaction fee, which you claim; prioritize transactions that have been waiting longer). Add a transaction that gives you the current consensus mining fee out of "thin air"; that's the only place new coins get injected into the system. Include a hash of the previous block; that's what makes it a block chain. Then, via brute force computation, come up with some additional data appended to the transactions such that the double-sha256 hash of the data block (the sha256 of a sha256 hash of the block) is smaller than a certain upper bound (determined by the current consensus "difficulty"). Since you can assume the hash is evenly distributed across all possible values, to compute a hash smaller than a certain value requires brute-forcing enough hashes for one to land in that range. This is equivalent to "find a hash that starts with a certain number of 0 bits", but "less than a certain value" allows increasing the difficulty without doubling it.

Once you have a new block, tell other miners about it. Assuming you've followed the "consensus" rules for difficulty, mining fee, transaction fees, and similar, then the other miners will accept your block, and immediately start trying to mine a new block starting from yours rather than starting from the previous block. So, at that point, the consensus block chain includes your block, which means all the transactions you included took place.

The rest of the complexity comes in with questions like "how do you advertise a transaction you want to the miners", "how do miners communicate with each other", "how does the consensus change over time", and "how can existing clients handle new kinds of transactions that they don't natively understand".

To be fair, you covered only the blockchain construction part of Bitcoin. There's also the transaction part - keys, addresses, scripts, etc. Of course these also have an equally simple high-level explanation.

Given that the article was about a competing blockchain technology, the blockchain itself seemed like the main foundation to start with.

Do you think this 'simple' explanation would be adequate for someone without a CS related background strong enough to understand hashing or the difficulty of reversing crypto hashing? What about explaining why people can't fake transactions?

Does it need to be? Most people don't know anything about the underpinnings of the bank and credit card systems. I talk about btc as pseudonymous digital cash first (and the tradeoffs of consumer/producer benefits that entails), mention its capability for more (escrow, 'programmable money', store of value, signatures...) next, and give my best go at explaining what I know of the more complicated details of the implementation only to people really interested. It's fun to try metaphors (and there are a lot, even just around asymmetric encryption) for those without the tech background but I don't think it's very fruitful.

I mean no offense by this, but I'm in a similar boat to OP in terms of not fully "getting" the tech of Bitcoin (despite being a very technical person) and this explanation did not clear up anything for me. The density of technologies and keywords and buzzwords every time someone tries to "simply" explain Bitcoin is mind boggling.

By sending BTC to other addresses,including a small fee, you broadcast transactions across the Bitcoin network, nodes collect these transactions in their mempool.

Every 10 minutes a miner finds the answer to a problem, and collects as many high fee paying transactions that will fit into a block of 1mb, awards himself 25btc and collects the fees. Miner broadcasts this block. Other nodes receive it,verify its validity and relay it.

Work then begins on finding the next block by miners.

People want to send money to others, so they go to their nearest accountant and ask the latter to write their transaction down, so it's formalized. All these accountants are in the same room and each one has a bunch of transactions to write down, but they need to figure out how to write them down a specific way.

When an accountant figures out how to write down the transactions he has at the moment, he yells "HA! I got it!" and the transactions to everyone else in the room, who goes "ugh, damnit", the accountant collects the fee from the people whose transactions he wrote down, and the cycle begins anew.

>there are people out there who understand it

Not to mention that the creator of Ethereum is 22 years old.

22? when was his birthday?

31 January 1994

What has his age got to do with it?

He proposed it in late 2013 so around 19-20 years old.

Yes, and he's also a genius. So what?

My explanation that doesn't cover all the use cases: How do you authorize/prove ownership in a digital domain: Public-key Cryptography. How do you order entries in a public, permissionless database: By forcing computers to expend an unforgeable amount of work to timestamps entries.

Bitcoin is a distributed p2p database where nodes can agree over the updates, which is incidentally used as a ledger for a digital currency.

Bitcoin is nice, but the real geniality of it is the blockchain.

> but the real geniality of it is the blockchain

and the blockchain only works because nodes only agree over the updates as they rewarded in bitcoin for doing so. if they cease agreeing then they cease getting useable bitcoin.

hodor

there really aren't two sides to the blockchain without bitcoin debate. nobody in the history of computational science has ever found a way to get computers to verifiably agree. an incentivized network is the only solution right now. its great that people want to attempt this without the fungible digital currency reward, but no other consensus method has been found since the beginning of time

The basic technology is not that hard to understand. The implications are less obvious.

> If you cannot explain it, you probably don't understand it.

Right, as you and your friends have demonstrated.

There are people that understand it. 7 years in and you have decided not to. That's all it comes down to.

Bitcoin doesn't seem that indecipherable to me, just a dumb idea. It's a network that uses proof-of-work to transfer value. (I say it's dumb because decentralized currency is a bad idea, viz. all the dumb things you read about happening in bitcoin-world)

Just curious, what is dumb about it? The transfers work very well.

What dumb things do you hear about happening in the bitcoin world, 900 billion dollar bank heists? wait that was distinctly not on bitcoin's network

Just wondering what you were referring to, since the value transfer works without anyone caring about the drama

The amount of resources to process a whopping, what is it, 2 transactions a second? (And don't say "but lightning network!". Come back to me when something ACTUALLY happens.

Are you referring to the high hashrate? that isn't a requirement for the "2 transactions per second". It is basically unrelated.

It would work if everyone turned off their computers and the hashrate dropped to one

except then I would turn on my computers and earn all the bitcoin instead, which nobody else wants to happen when they can be earning more bitcoin than I

I think it is pretty clever and the network works very well. Your criticism is about its future scalability?

Transferring bitcoin right now, has worked just as well as it worked back in 2012. You send it from one address, to another address, and it gets there in the same time period.

You could ignore all the drama for the last four years and your transaction would still work. Just as much as you ignore all the board meetings that VISA has, that SWIFT has, that the engineers at FEDwire have.

The scaling issue is a fun thought experiment, but it really doesn't matter for you actually using bitcoin. Which promise are you criticising? How bitcoin is supposed to compete against the US dollar?

I've got the cast and crew of the Panama Papers over in cryptocurrency now, and it works really well, while people are still questioning what bitcoin even does. 2012 is over, shit still works.

Typical handwaving. You make it sound like everything has fine, but there have been many many occurrences of full blocks and delayed transactions over the last year.

My last fees were .00013 and .00005 respectively. If I was just reading headlines and not actually using bitcoin, I would think there was a problem too.

If you are worried about the network scaling, there are criticisms to be had. The network works very well for me, I don't consider that handwaving. I consider Blockstream to be delusional people, it has nothing to do with the network, it works really well if you've tried to use it, even during one of those "stress tests".

As long as it's just a few hackers playing with their toy, yes, it works fine. It fails horribly at any sort of non-toy use case. It couldn't even support the transaction volume of a small city, much less an entire country, or the whole world.

"It's so crowded, no one goes there!"

I agree that the throughput capabilities of Bitcoin are absurd, and that Lightning network is not a substitute for onchain transactions.

However, did you know that the hashrate and transaction throughput are almost entirely unrelated? Hashrate is correlated to the value of the coin that can be kept secure, not to the number of transactions per second that can be processed.

I dont' buy this "value of the coins" argument at all, it doesn't even make sense.

And the data agrees with me: http://imgur.com/a/7Qjpa

He didn't say that the market cap of btc was tied to the hashrate (which is of course bullshit).

He said that the hashrate relates to how much BTC you can keep safe, which is provably true.

Let's say you control 10% of all hash power. Satoshi's paper helpfully maps out that the likelihood of you being able to pull off a double spend if I wait for 5 confirmations is 0.1%. If you were to mine honestly over 5 blocks, your expected reward is 12.5 BTC from block rewards (plus some more from fees). If you attempt to attack me, the total reward is my transaction value plus 5 blocks' worth of block rewards, so 125 BTC. At 0.1% chance of success, you need to win 12500 BTC from your double spend attack, so if you sent me less than 12375 BTC, I know that after five blocks you have no economic incentive to try to double spend.

For a fixed block count before accepting the transaction (5 blocks in this example), the higher the hash power you control, the higher the probability of success for your attack, and the less money you need to double spend for the attack to be economically rational. Inversely, and precisely the GP's point, the higher the hash power, the more money you can safely transact.

We are at 2 TX/sec because, well, people simply don't transact more than that.

Bitcoin CAN support a much higher transaction rate with ZERO increase in mining resources. All we need is (1) more transactions and (2) a block size increase. Let it be clear: the only "dumb" thing is not the system itself, but Bitcoin developers who have not yet agreed on increasing the block size.

Secondly, seeing the mining resources as spent only validating transactions is failing to see the whole picture. Miners sustain a system that is already a net benefit to the economy. Venture capitalists invested more than $1 billion into at least 729 Bitcoin companies which created thousands of jobs. Is all this worth the 150+ megawatt of (practically all) clean energy used by miners? Hell yes! This argument (and others) is explained in detail in:

http://blog.zorinaq.com/?e=82

>> a block size increase

Which is not forthcoming because of idealogical arguments and entrenched interests.

If you mean that big heist last month or so, almost all the money (90%) was recovered 81M lost out of 951M. That'd simply not happen with BTC. And there's been plenty of cases of BTC getting stolen and putting exchangers out of business.

The money wasn't recovered, it never left in the first place, they tried to transfer 951M but only 81M went through.

> The transfers work very well.

Sometimes it takes days for a transfer to enter the blockchain proper. I'd say that isn't working very well.

If your fee is too low.

> Why are they gaining traction and nobody I know even knows about them...

This reminds me of the old "How did X get elected? I don't even know one person who would vote for X!" It speaks much more about the individual than the public. I feel the same way when I hear about the latest SaaS/Social-whatever.

Bitcoin is trying to undo https://en.wikipedia.org/wiki/Chiemgauer

https://www.lewrockwell.com/2013/12/gary-north/bitcoins-vs-g...

The innovative is that bitcoin is an autonomous computer network. It uses game theory and cryptography to ensure that no one entity can control and network and that the network always performs its operations independently and neutrally. This is an incredible innovation. Etherium is not this and just empty hype. There is a lot of misinformation out there. Bitcoin is not just a data structure.

    Etherium is not this

That claim needs backing up. From what I can tell Ethereum also uses game theory and cryptography to ensure that no one entity can control the network.

Reply on news.ycombinator.com