How the Bitcoin protocol actually works

Absolutely love this quote from the article: "Money is like gas in the car – you need to pay attention or you’ll end up on the side of the road – but a well-lived life is not a tour of gas stations!" - Tim O'Reilly

It would be better to just be explicit.

Money can be an incredibly useful thing to have, but getting happiness is a lot more complicated than just getting a lot of money.

From the article: "I don’t understand why double spending can’t be prevented in a simpler manner using two-phase commit. What drawbacks and advantages does it have compared to the full Bitcoin protocol? uppose Alice tries to double spend an infocoin with both Bob and Charlie. The idea is that Bob and Charlie would each broadcast their respective messages to the Infocoin network, along with a request: “Should I accept this?” They’d then wait some period – perhaps ten minutes – to hear any naysayers who could prove that Alice was trying to double spend. If no such nays are heard (and provided there are no signs of attempts to disrupt the network), they’d then accept the transaction."

The problem with 2PC is that a malicious node could stop somebody from being able to spend their coins by always sending nays out to the network when ever the victim sent a transaction. To prevent this, you would need to be able to detect when a node is faulty/malicious which would require implementing a costly Byzantine Consensus Protocol [1]. In practical systems that can withstand Byzantine faults, the number of messages required to agree on a log entry (e.g. a transaction) would be O(n^2) in the number of nodes in the network, which would greatly limit scalability.

The genius of Bitcoin's Proof of Work protocol is that:

1) it is more resilient than Byzantine agreement. Byzantine agreement with 3f+1 nodes can handle at most f faulty nodes, while Bitcoin can tolerate 49% of the network hashing power being malicious. (though this is being debated currently due to theoretical strategies like selfish-mining)

2) it is much more efficient than Byzantine agreement in the number of messages sent, which has allowed the network to scale to thousands of nodes, although they have been running into issues with the blocksize/block limit, but their are currently research efforts [4] underway to remedy this.

The main problem with Bitcoin's proof of work scheme it is that it is extremely expensive in terms of CPU cycles, but this is solved by compensating miners for their efforts through coin generation and transaction fees.

[1] - http://www.cs.cornell.edu/courses/cs614/2004sp/papers/lsp82.... [2] - http://pmg.csail.mit.edu/papers/osdi99.pdf [3] - http://arxiv.org/pdf/1311.0243v5.pdf [4] - http://www.cs.huji.ac.il/~avivz/pubs/13/btc_scalability_full...

Great article. There is a lot in the bitcoin protocol that is possible that the vast majority of people have never heard of, some of which this article touches on.

For an idea of some of what could be done, see the Contracts section on the bitcoin wiki:

https://en.bitcoin.it/wiki/Contracts

In the near future, we may start to see things like multi signature transactions* and the like. In theory, it could open up some very interesting options.

*Technically, I believe there exist a few of these transactions already on the blockchain.

> Of course, any still-pending transactions in A will still be pending in the queues of the miners working on fork B, and so all transactions will eventually be validated.

I don't understand this. So you have fork A and fork B, and once fork B wins, what happens to the transactions being done on fork A? Discarded? Do transactions sometimes not ever get verified?

From what I've quoted, I'm guessing no, transactions in fork A somehow get verified by work being done in fork B. How? Do these transactions exist in both forks?

Also, in general, how do p2p networks facilitate the finding of nodes? The links provided [0] describes how a node figures out what to tell other nodes about itself [0], and how to talk to other nodes once they've been discovered [1], but how does a node actually find other nodes, to begin with? Best I can tell it's just a text file with a bunch of "starter" nodes.

    [0] - https://en.bitcoin.it/wiki/Satoshi_Client_Node_Discovery
    [1] - https://en.bitcoin.it/wiki/Network