In this chapter, we will find out what makes the Bitcoin blockchain machine tick in a decentralized way. We are going to take a deep dive into the consensus mechanism of Bitcoin called Proof-of-Work and see what it has to do with complex math problems and mining. We will cover the following topics in this chapter:
The Byzantine Generals' Problem is actually an abstract way to describe a problem in computer systems introduced in a 1982 paper of the same name. The problem states that reliable computer systems must be able to function effectively in the presence of faulty components that may send conflicting information to different parts of the system. This issue is even more acute in decentralized computer networks.
This is illustrated in the following diagram:
Let's imagine the following thought experiment.
The Byzantine army has surrounded an enemy city. The army is organized in several units. Each unit is commanded by a general. All these generals need to come up with a coordinated plan of action, but they are located away from each other and can communicate only via messages. To make things more complicated, one or more of the generals...
Now that you know the problem, let's see the solution, which is called the Byzantine fault tolerance algorithm. This algorithm involves game theory and math.
The first and foremost practical implementation of the Byzantine fault tolerance algorithm came with the Bitcoin's Proof-of-Work. In this case, the generals are nodes on the Bitcoin network, also known as miners. A network node is a connection point that can receive, create, store, and send data across a network. In other words, nodes are the connected dots that make up a network.
The important concept to grasp here is that these mining nodes start from the assumption that nobody else on the network can be trusted.
The Proof-of-Work algorithm guarantees network consensus even in the presence of Byzantine non-compliant nodes. Let's see how this mechanism works in Bitcoin...
In this section, we will see how game theory comes into the picture.
Game theory is the study of mathematical models of conflict and cooperation between intelligent rational decision makers. It is mainly used in economics, political science, and psychology, as well as in logic and computer science.
Sounds exciting, doesn't it? Let's see how it applies to Bitcoin's decentralized consensus.
First, we need to consider that Bitcoin mining is a capital-intensive business. This means that miners need to make a large capital investment in expensive mining computer hardware, also known as mining rigs. Bitcoin mining is so industrialized nowadays that most of the hash power comes from large data centers, also called mining pools.
Besides capital expenses in physical hardware, there are also substantial operating expenses to run a mining...
In this chapter, we learned all about consensus algorithms and how they came to be. We learned about the Byzantine Generals' Problem and how it is connected to the world of Bitcoin. We learned all about the Proof-of-Work algorithm that ensures the security and integrity of the Bitcoin protocol.
In the next chapter, we will get to know about the extensive peer-to-peer network that Bitcoin works on.
© 2019 Packt Publishing Limited All Rights Reserved
