I like that this actually covers why each piece is needed.<p>My only beef with this system is the proof of work, which leads to an arms race in electricity consumption. Proof of stake is better, and frankly, distributed timestamps don't need a race to solve a problem every time something has to be timestamped.<p>For currency, it would actually be nicer to have a system that treats trust/credit/reputation as the scarce resource. It would help people who aren't rich in the traditional sense nevertheless organize and help each other, and would allow people to "create their own currency" in communities, or the equivalent of that, that they aren't able to do now.
Excellent read. This is not for a general audience, but helped me get a nicer grasp on the fundamentals technology than I had before without getting too particular in the under the hood stuff.<p>The "blocks are never final" idea is what I believe has led to some of the proposed 51% attacks on the bitcoin network.<p>Question: Does proof of work have to be a near 'lottery' system? Obviously it needs to be asymmetric, but are there other good options than hash collision?
The author seems to have mildly misunderstood the technicalities of hashcash-like systems.<p>They seem to have thought that the hex representation of the hash matters when mining, when really we're talking about large integers. If you just do the former "look for a hash with two 0 at the start", you end up with almost no granularity in the difficulty needed. You end up in the situation where 0000 is too easy, but 00000 is too hard. Bitcoin uses integers, and can therefor adjust the target difficulty down to an arbitrary number of digits if required.<p>Seems to be a common misconception when people have been told a simplified version of what is going on.
The article fails to mention that while separation of a blockchain from the currency is technically possible, in reality a blockchain without associated currency won't work as nobody's going to spend their CPU time maintaining it without getting something (money) in return.
Excellent write-up, but having taken Corporate Accounting courses the "triple-entry bookkeeping" moniker tripped me up a bit - it's an inaccurate metaphor (see <a href="http://en.wikipedia.org/wiki/Double-entry_bookkeeping_system" rel="nofollow">http://en.wikipedia.org/wiki/Double-entry_bookkeeping_system</a> to understand why).
For handling distributed convergence in an entirely trusted space, take a look at Vector Clocks
<a href="https://en.wikipedia.org/wiki/Vector_clock" rel="nofollow">https://en.wikipedia.org/wiki/Vector_clock</a><p>Blockchains build off the general concept by introducing proof of work and consistent design to handle forks (longest blockchain wins)
Note that blockchain is more than a currency, but it must contain a collectible within itself in order to be. New blocks will appear and will be backed by the maximum computing power only if miners are competing for the rare collectible that exists within the blockchain. Such collectible must tend to become a universally accepted money (i.e. most marketable commodity) to guarantee maximum amount of CPU time. If that collectible is too inflationary or sucks at something (poorly transferrable, or poorly divisible), then the entire blockchain is at risk. In other words, if there could be a long-term viable and secure blockchain, there will only be one. Everything else will be insecure and fall victim of the law of opportunity cost.<p>See also:
<a href="http://blog.oleganza.com/post/54121516413/the-universe-wants-one-money" rel="nofollow">http://blog.oleganza.com/post/54121516413/the-universe-wants...</a>
Finally an analogy-based explanation of cryptocurrencies/blockchains that I read all the way through!<p>Two questions: Currently, bitcoin transactions don't have any transaction fees. In this case, where are these 'mined' coins coming from? Is it by adding a transaction from 'the ether' to the miner?<p>Also, if there are transaction fees but the person who verifies the block adds their own fee to the block, what's stopping them from verifying that Alice and Bob have offered the miner a transaction fee of 100 BTC instead of 1 BTC?
> The critical property of the above workflow is that the output of the cryptographic hash function (SHA-256 in this case) is completely different every time we modify the input: the hash value of the previous attempt does not tell us anything about what the hash value of the next attempt when we increment our counter - i.e. its a non-deterministic algorithm.<p>It's a fully-deterministic algorithm. It would be quite useless if it were not. I believe what the author is trying to say is that it's not <i>predictable</i>.
I propose that someone create a proof-of-work system that creates a distributed auction of the computing power of the miners. This has the twin benefits of not wasting electricity on doing useless hashes, and of providing a backing for the value of the created currency (because the currency can be used to purchase computing power from miners). A standardized NP-complete problem formulation could be used.<p>I haven't worked out exactly how to do this (specifically: if the problems posed to the miners are not random, what is to prevent a miner from posing a problem to which they already know the answer?), it's just an idea.<p>more rumination at <a href="https://en.bitcoin.it/wiki/Intrinsic_worth_brainstorming#pseudo-BTC_that_uses_computational_power_in_service_of_some_problem" rel="nofollow">https://en.bitcoin.it/wiki/Intrinsic_worth_brainstorming#pse...</a>
As much as I hate the concept of "trusted computing" I believe it could help with Sybil attacks. <a href="http://en.wikipedia.org/wiki/Trusted_Computing#Endorsement_key" rel="nofollow">http://en.wikipedia.org/wiki/Trusted_Computing#Endorsement_k...</a>