Gameable Systems

In this article we look at a few systems that exist in the real world, that are supposed to be secure, or solve a certain problem, and then we look at how people have tricked the system (“gamed”) into giving them an unfair benefit. We also look at what makes systems more or less gameable. Let’s start by looking at two example systems that have been gamed.

School grades are a fantastic example of a gameable system. The system of grades in school was invented with the purpose of measuring how well a student is learning. If schools didn’t have an objective measure of who had learned the content, and who hadn’t, then anyone graduating from Harvard could be a completely incompetent person. So, “grades” were invented. Teachers and professors created “A”, “B”, “C”, “D” and “F” to give a clear and comparable mark to each student. The students can compare their grades to each other, and understand how they rank compared to their peers. Suddenly, the outside world stopped wondering how much or how well a student had learned the content of their study, and started solely looking at the grades that a student got. This then meant that the students not only have to care about learning, but they also have to care about getting good grades, which is a separate task. Students began to game the system, by focusing on how to get better grades, instead of focusing on learning the course material. A large part of this comes from how the grades are calculated: exams can only have a certain small percentage of the course material, and so the students just need to figure out what sort of questions will be on the exam, and spend all their time practicing those questions, and neglect to study the material that isn’t on the exam. If you get a fantastic grade, but have intentionally avoided learning part of the course material, then you have successfully gamed the system of school.

Websites on the internet
When the internet was young, there were not that many websites around, and so they were simply listed in indexes, like a phone book. As the web grew, the need for a service that allows you to search through the internet to find what you want, became more and more pressing. So, Google now exists, and promises to find exactly what you’re looking for, when you search. However, this system has also been gamed. Just like how students compete to get the best grade, instead of competing to learn the material best, people who own websites compete with each other to appear on Google, instead of having the best content on their website. One way to increase your likelihood of appearing ahead of other competitors is to buy backlinks to your website. There are many other aspects to SEO however, which is a topic for another day, and most likely another blog.

What makes a system more or less attractive to being gamed?
Fundamentally, a system is more gameable if there is something that can be gained by gaming it. A system is less gameable if there isn’t a reward for gaming it. It also matters whether there is competition, and how able the other players in the competition are to also game the system. If everyone is honest, then it’s a fair playing field, and the score everyone gets is accurate with their ability, they get the rewards they deserve. However, as you may have encountered, not everyone is honest.

What makes a system gameable?
A system is gameable if there is a difference between what is supposed to be being measured (e.g. measuring learning, or measuring how relevant and interesting a website’s content is), and how it is being measured. In the case of schooling, grades are an approximation of learning, because you’re also measuring how well a student performs under pressure, how well they are able to think quickly, and a number of other factors besides how well they have learned the material. So, the goal for the designers of systems, is to make the measurement method as close as possible to what they are really trying to measure. This can be hard.

In the blockchain system, let’s take for example, Bitcoin, there is a huge incentive to game the system: money. If you can trick or game Bitcoin somehow, then you essentially have nearly unlimited free money. So, there is a lot of motivation for a lot of talented people to attempt to game Bitcoin. How gameable is it? Well, what bitcoin is trying to measure is a bit of a mystery. It’s not measuring how well anyone has learned something, and it’s not measuring website content. It’s a subtle answer, let’s break it down into two parts. Firstly, let’s look at holding Bitcoin. The system has been designed so that it is assumed everyone is untrustworthy, and that everyone stands to gain by gaming the system. As such, strong encryption was used when gaming the system, and the protocols were designed to work with zero trust. This aspect of Bitcoin is completely un-gameable. It sounds like an extremely strong and over-confident statement, but it’s probably one of the first systems in the world that is not gameable. Let’s look at the other part of Bitcoin, the mining. Bitcoin is trying to measure who has done the mining of transactions. Bitcoin is trying to measure and reward the people who have done the most transaction processing for the Bitcoin network. It does this by making everyone compute hashes, which results in a cryptographic proof that they have completed the hashes that they claim to have. If they try to trick the other peers, then the peers will know and the claimed work will be ignored. You must compute the hashes to get a chance at the reward. So, everyone’s efforts have gone into direct competition at the intended and correct task: computing as many hashes as possible, as fast as possible, as cheaply as possible. And this is a beautiful thing.

Barriers to Mass Adoption

This is an article about using bitcoin for real life transactions, buying and selling physical goods and services. We first cover how bitcoin works when you make a transaction, and some of the unique things about transacting with bitcoin. Then we cover the advantages and disadvantages of using bitcoin, and outline what needs to be changed about it to improve in the future, and reach wider adoption.

Bitcoin is a digital asset, like gold, rather than a digital currency. For more information on this distinction, and how it evolved, please see our Introduction to Decentralization parts I and II on this blog. Most people simply use bitcoin for speculation; they buy it and hope the price will go up, and hope to sell it at the peak of a price. More often, people feverishly buy bitcoin when the price is on a steep surge, and panic sell at the first drop. Debating the ethics and usefulness of this phenomenon is entirely other topic, so today we will be focusing on the direct use and utility of bitcoin as a method of exchange of value, in trades such as purchasing physical goods and services.

When two people want to engage in commerce (let's take for example, e-commerce, with normal fiat currency) they need to both trust each other first. The risk on the seller is that the buyer will promise payment and then fail to make payment, or make payment and somehow reverse it. The risk on the buyer is that they will make payment and the seller simply will not send the promised goods, or will send something other than what was agreed. This problem is mostly one-sided in the real world, because, when a seller has transacted for a long time with many other buyers, they have an established trust and reputation, so the buyer's risk is significantly reduced. Lots of mechanisms exist to facilitate this: eBay's feedback system, or Amazon's star-rating system. Less well known about, and less well understood is the mechanism to reduce the risk to the seller. Sellers are at risk, because the buyers could use a stolen credit card (for example), meaning that the seller not only loses the money (after it's refunded), but they also lose the goods.

Bitcoin is irreversible, which means that once you send a payment, you can't get it back. There is no such thing as a charge back in bitcoin; once you send a payment, it's final. This used to be a big issue for the seller, because, if a buyer uses a stolen credit card, and the seller is forced to refund the money, then the seller is out that money. But with bitcoin, it's not a risk. That said, this creates another problem for the seller, because now they really need to put a lot of effort into proving or convincing everyone that they are in fact trustworthy, and won't just run off with the irretrievable bitcoin, and not provide the goods or service. That scenario can be a big issue for the buyer, because, if they send the money by accident (perhaps due to a software bug), then they cannot retrieve the funds, as they are broadcast to the network and beyond.

Real example
Let's now look at how a real world transaction occurs using bitcoin. Let's take a real concrete example. Suppose you want to buy some physical item, say, a foot and calf massager, from a seller. You go to their website and they only accept bitcoin as a payment method. You happen to have bitcoin, and really want a massage, so you conclude that you wish to purchase the item, entering your shipping details and seeing the total price, in bitcoin. Next, the seller provides their public address (publishing it safely on their website), for everyone to see. Because it's only the public address, no-one can take the seller's bitcoin, it's completely impossible for anyone to steal the seller's bitcoin with just the public address. Next, you open your bitcoin wallet and transfer the correct amount of bitcoin to the seller's public address. This is the only time you will see the seller's public address, as it's a one-use address. Nor will the seller ever see your private address. All transactions are one way, meaning that seller never needs to worry about the other party not fulfilling their end of the bargain. Once the seller has the bitcoin, it is irreversible. The seller does not need to worry about being scammed, or having to initiate a dispute with some arbitrary court, or anything like that. Because of this, the seller doesn't need to worry about the reputation of the buyer.

When you pay with a credit card, the transaction is processed nearly instantly. This is because there is a big company (either Visa or MasterCard, usually), who is being paid to run all those servers and make them fast and responsive, and makes sure that they never go down. They of course get paid by the merchant who is accepting the payment, but sometimes the merchant passes that fee onto the customer. So, you trust the credit card company with you money, and you also have to pay for the speed. However, with bitcoin you don't have to trust anyone, but the downside is the speed. Bitcoin transactions can take 20 minutes to go through, which is a long time to wait if you are ordering food. It's not necessarily a bad thing for online sellers, because it's only a few minutes for the seller, they aren't waiting around, but it's a really long time for the buyer to wait for the satisfaction of knowing that their item is on the way. The delay is also a big problem for brick and mortar, physical merchants, because they don't have the option to wait 20 minutes to be sure that payment is confirmed, they need to immediately start cooking the food (for example). This can be a hassle. In fact, if a merchant waited 20 minutes to ship, then they would probably lose all their business, because all their competition would have already provided the goods by that time, and the customer would already be waiting for their confirmation.

In summary, two problems need to be solved for bitcoin to reach mass adoption. The first problem is that we need a way to trust sellers (or anyone who accepts bitcoin), and secondly we need the bitcoin transaction to occur rapidly, and not take 20 minutes. Hopefully, these things will emerge in the future and we can all reap the benefits of bitcoin.

Difficulty and Hashing on the Blockchain

What is Bitcoin Mining Difficulty?

Difficulty is an inherent property of a blockchain network. It is used to measure how hard it is to find a hash that will meet the current target. The network will adjust the difficulty so that a hash is found every 10 minutes. The difficulty of the network can be measured in hashes per second.

If the hash is not found, it will be decreased by the network and the process will continue. The difficulty of the network is adjusted every 2016 blocks.

The difficulty is an important aspect of the network because it determines how much power is required to mine a block. If the difficulty is high, it takes longer to find a hash that meets the target (in order to be accepted). If the difficulty is is low, then it's easier to find the hash that will win the block.

Some people argue that all this hashing is simply using burning up electricity, and generating heat, in an already warming climate. I can understand that the concern is about "real physical harm" being caused for "imaginary money benefit", but this argument also applies to paper money, which is also imaginary, in a sense. Billions of dollars are printed onto fabric, and swimming pools full of special expensive inks are sloshed onto bills. All of that shipping and printing machinery and lighting also requires electricity. However, because absolutely everyone has (at least a few times in their life) used cash, and so as a result, to most people, it seems like a "necessary" cost, compared to the relatively smaller environmental cost of mining bitcoin. Further to this, miners actually greatly prefer renewable sources of electricity such as solar or geothermal, because they don't have to pay for it: It makes business sense as well as environmental sense.

The benefits to society already are substantial. It takes a lot of power to run the entire financial system. Mining is a way to "outsource" that to a decentralized system, distributing the load, rather than having it all in a few locations.

What is a Hash?

There are a few different ways to compute a hash. The most common is to use the SHA256 hash function. This is a cryptographic hash function that produces a 256-bit hash. SHA256 is designed to be feasibly impossible to reverse. That means it is very hard to find two inputs that hash to the same output.

In this case, the input is the block data, and the output is the hash. A hash will always be the same length, which is usually smaller than the data it is hashing. If the block data was several megabytes, then the hash will be smaller, simply the same length every time. The block hash is a representation of the data in the block.

The block hash is not the same as the transaction hash. A block can contain multiple transactions, but a transaction will only have one hash.

If you are wondering why the hash must be smaller than the data, think about how a hash is made. A hash function is a one-way function that takes an input and returns an output. Data is not returned as part of the output, so information must be lost. In essence, the hash function is like a super-secure checksum. It can be used to detect errors in data. If you start with a certain amount of data, and change it to other data, the hash will change. Blockchain relies on this fact to keep everything secure.

If we are given the block data and want to determine the hash, we would feed the data into the hash function and get back a unique string of 256 bits. This is called hashing the data. We then compare this hash to the target. If the hash is less than the target, we have found a valid block hash.

The target is just a random number that is stored on the network. It is set when the network starts. Every time a new block is mined, the target is increased to ensure that a block is found every 10 minutes. The network can adjust the difficulty of the hash via the target.

In Bitcoin's case, the target is a 256-bit number. It is an extremely large number that requires a lot of power to calculate. The more power you have, the higher the chance you have of finding the hash.

Bitcoin Mining Hardware

The main hardware used in mining is the application-specific integrated circuit (ASIC) which is a piece of hardware designed for Bitcoin mining. The ASIC is designed specifically to do the hashing required for Bitcoin mining. A normal computer is not powerful enough (in this narrow domain) to compete with an ASIC. However, an ASIC cannot perform even the most basic functions that a normal computer can perform.

ASICs are extremely powerful and efficient at the task they are designed for, only. They are very expensive, and can cost thousands of dollars. A normal computer system is not able to compete with ASICs because it will take a very long time to find the hash, even with free electricity. In the early days of bitcoin mining, moving from a normal computer to an ASIC was like putting on a weight lifting belt. You just feel so much more powerful.

ASICs have a lot of hash power. Currently, the best ASIC miners are able to mine about 5 TH/s. That is 5 trillion hashes per second. The Bitcoin network is designed to generate 1 block every 10 minutes, so that means the network is over 500 trillion hashes per second.

The advantage to having so much power is that you are very likely to find the hash first. Then you will be able to add the block to the block chain before anyone else does. You will get the reward for finding the block.

What is the Block Reward?

When a block is found, a fixed amount of bitcoin is created. The reward for mining is the bitcoin. The reward is given to the block's miner. The amount of bitcoin the miner is rewarded is the block reward. The block reward was huge in the early days, but decreases over time.

The block reward was 50 bitcoin when Bitcoin was first released, which seems like a huge amount of money now, but back then, it was worth nothing. The block reward is halved every 210,000 blocks. This is called "halving the block reward". This will continue until 21 million bitcoin have been mined.

Why Do We Use Proof of Work?

Proof of work is the main way that Bitcoin secures the block chain. Proof of work is the cryptographic hash function that miners use to find the hash. Proof of work ensures that a miner must do some work to find the hash. This is what secures the network.

Proof of work is very hard to calculate, but easy to verify. That means that it is easy to check if someone has done the work, but very hard to come up with the answer without actually doing the work. This is one of the few important properties pf the mathematics that make Bitcoin's proof of work so useful.

Alright, that is enough theory on the inner workings of blockchain for this article, thank you for reading!

Blockchain and Internet Privacy

Privacy on the internet is a hot topic. Blockchain, the topic of this blog, has a large part to play. But how private are transactions on the Blockchain really? On the one hand, transactions are pseudonymous in the sense that they can’t be directly traced back to an individual person or business in the same way as fiat transactions. But on the other, the blockchain itself is public and stored for eternity – what could be less private? In this post I will discuss the privacy behind bitcoin, how it can be made more secure, and some future research into blockchain security and privacy. Let’s get started!

Bitcoin is pseudonymous, not anonymous

Bitcoin and other cryptocurrencies are pseudonymous, meaning that they cannot be traced back to a specific person. However, it is sometimes possible to link transactions to real-world identities. This is a problem for two reasons. Firstly, if a person’s identity is linked to a transaction, then all their prior transactions are also linked. This means that it is possible to track a person’s digital footprint. Secondly, the pseudonymous nature opens the possibility for criminals and hackers to use cryptocurrencies for illegal activities.

In order to identify who owns a specific wallet, bitcoin addresses are sometimes traceable to IP addresses and other personal information. One way this happens is through the mining process. Bitcoin transactions are broadcast to the blockchain and stored in blocks. Each block must be confirmed by the nodes in the blockchain, in order to be added to the blockchain. In this process, the miners verify the transactions in the block. In order to do this, they need to identify the sender and receiver of the transaction. To do this, they can use a variety of methods. They can look at the IP addresses of both the sender and receiver to see where they are connected to the internet. Alternatively, they can simply ask and the receiver will tell them.

Once the miner knows the sender and receiver, they can link their bitcoin address to their real-world identity and track all their transactions. All this information is stored on the blockchain and is public. Anyone is able to access this information with a simple internet search. The blockchain is a public ledger, meaning that it is exposed to everyone.

Instead, secure the network

One way to increase your privacy on the blockchain is to use a Virtual Private Network (VPN). A VPN service is a private network that uses a public network to connect remote sites or users. For instance, a company might use a private network to connect its branches. It might use the public internet to connect remote sites to the private network. In this case, the VPN is used to provide privacy. The data is encrypted as it travels between the remote sites or users and the VPN server. This ensures that no one can see the content of the data. If the data is intercepted, it is useless to the interceptor.

A VPN can be used to send bitcoin transactions securely between two users. The transactions are encrypted and sent over the VPN, meaning that no one can see the IP addresses associated with coins being sent or received. The VPN hides the IP addresses, and transactions are not traceable. While using a VPN is a good way to stay private and safe on the blockchain, it does have some limitations. Firstly, VPNs are not free. If you are a casual user, you might not want to pay a lot of money for a VPN. They also come with a small security risk. A VPN is a shared network, so you are connecting to the internet through other users. This can increase your risk of being hacked. A VPN is a good way to increase your privacy on the blockchain, but there are other solutions as well.

Privacy on the blockchain

The future of blockchain is bright. New technologies are being developed to improve security and privacy. One of the most promising technologies is the use of zero knowledge proofs. Zero knowledge proofs are mathematical functions that allow someone to prove that they know a piece of data without releasing that data. They are commonly used in cryptography to prove that you know a secret without revealing the secret. The sender proves that they own the bitcoin they are transferring without revealing the address where the bitcoins are stored. This is done by sharing a cryptographic code with another party. The second party then uses this code to prove that the transaction is valid. However, the code does not reveal the sender’s identity.

Zero knowledge proofs are a good way to increase privacy on the blockchain. However, they are still not perfect. For starters, the process can be complicated. It can be hard for a beginner to understand. Secondly, zero knowledge proofs are very computationally intensive. In fact, the process is so intensive, that it slows down the entire transaction. This is a problem, because blockchain-based technologies are already slow enough.


The blockchain is a great way to send money. It is faster and more secure than traditional methods. However, it doesn’t provide very good anonymity for users. Bitcoin is pseudonymous, not anonymous. This means that all transactions can sometimes be linked to a real-world identity. A Virtual Private Network is a good way to increase your privacy on the blockchain. However, it does come with a risk. Zero knowledge proofs are also being developed to increase privacy. However, they are still in the early stages of development.

The future of blockchain technology is bright. New developments will only increase the security and privacy of the blockchain!

Distributed devices


This article gives a brief explanation of two topics, and their intersection: Internet Of Things, and Blockchain. We then discuss the implications of these two technologies coming together, and the societal impacts.

Internet of Things (IoT)

The Internet of Things is a network of physical devices, vehicles, home appliances, and other items embedded with electronics, software, sensors, actuators, and connectivity which enables these objects to connect and exchange data [1] Each thing is uniquely identifiable through its embedded computing system but is able to interoperate within the existing Internet infrastructure. Experts estimate that the IoT will consist of about 30 billion objects by 2020.


While readers of this blog will be intimately familiar with the topic, we will include here a very cursory and condensed summary of what the blockchain is, for those new readers. Without further ado: The blockchain is a distributed database that maintains a continuously growing list of data records that are hardened against tampering and revision. It consists of data structure “blocks”—which hold data in most blockchain implementations—and two rules: (1) that the block can contain only a certain type of information and (2) that the information in a block cannot be altered retroactively without the alteration of all subsequent blocks containing the altered block. Each block contains a timestamp and a link to a previous block.

Blockchain technology was introduced in the 2008 paper, Bitcoin: A Peer-to-Peer Electronic Cash System. The blockchain was conceptualized by an unknown person or group of people under the name of Satoshi Nakamoto. To date, no one knows the identity of the person or group. Now that we have that out of the way, let’s continue.

How blockchain and IoT come together

It is not a surprise that IoT and blockchain are coming together given the fact that both are emerging technologies at this time in history. They’re also well suited to each other, because blockchain is based on a distributed database, and IoT is based on a network of physical devices, often physically distributed around the world. Blockchain can be used to provide a tamper-proof data storage capabilities for IoT applications. Further, blockchain can also be used to manage and control devices, especially ownership of the devices, and any credits used to make use of the devices.

Blockchain technology is a good fit for IoT applications due to the following reasons: Firstly, it’s a cryptographically secure distributed system: you don’t want your toaster to start going haywire when hackers break into the toaster manufacturer’s centralized servers. These kinds of problems are less of a risk with blockchain, because it is a distributed architecture with no central point to act as a weak point, and blockchain inherently provides data integrity and authentication. That is, it is a secure system (built on cryptography), as opposed to frail and fallible human checks and balances.

Blockchain and IoT applications

It is interesting to see how IoT and blockchain are coming together. The following are some of the applications, as pointed out by us:

Supply chain management: The use of blockchain can be leveraged in managing the supply chain of IoT devices. The blockchain technology provides a tamper-proof data structure that can be used for providing a secure and efficient supply chain management. The blockchain can also be used for controlling and monitoring the supply chain assets, vehicles and packages, including location and unique items.

Smart contracts: Smart contracts can be used for transferring money to a device for a service or product provided. It can also be used for transferring data from one device to another under certain circumstances in a "trustless" environment. Smart contracts can also be used for controlling the physical operations of a device, such as opening and closing a door.

Privacy implications

The privacy of the users of IoT devices is at stake due to the following reasons:

Because all of the information on the blockchain is permanently, publically available to everyone, some privacy concerns should be considered. It is entirely possible that a careful analysis of a blockchain could reveal patterns of behavior that were not intended to be shared or made public. In one of the examples above, this approach could lead to tracking the location of the supply chain items, and inferring the amount of trade or volume that a business is undertaking. Commercial businesses are better prepared to deal with such problems, and also (mostly) have less personal information to be concerned about. However, individuals are both less aware of the risks, and have much more personal information to protect. Combine this thought with the fact that more and more intimate and personal devices are becoming internet enabled (For example, a high quality pelvic floor trainer). So, careful consideration about whether to use blockchain or standard, highly secure internet protocols, should be undertaken.


Blockchain is a new technology that has gained popularity in the last few years, and it has applications in various industries, including banking, finance, healthcare, and supply chain management. It is interesting to see how the blockchain is coming together with the IoT, and the implications of this combination, including privacy impacts. We will continue to discuss the implications of this combination as IoT and blockchain become more mainstream.




Introduction to Decentralization (Part II)

Sequels are often a poor shadow of the original genius. But not in this case! Strap yourself in for the gripping part II of this introduction to decentralization. In part one we covered where the centralized world has come from historically. In this post, we continue the explanation of the seismic shift that has occured in the technology of trust, leading to decentralization.

But first, you need to understand encryption.


When talking about encryption and cryptography, two familiar characters enter the scene with habitual certainty: Alice and Bob. And sometimes one other character (evil Eve / malicious Mal).

There are two main things you can do with Asymmetric Key Cryptography (loosely, that’s where you have a public key and a private key).

The first thing that Alice and Bob can do with Asymmetric Key Cryptography is of course: Encrypting. Which means that Alice can write a sensitive message, encrypt it, and send it to Bob, without anyone but Bob being able to read it.

This is achieved by the following steps: First Alice writes her sensitive message e.g. ("Please send the goods to 123 Road Street."), and then encrypts it with Bob's public key, which everyone knows and has access to. Now, only Bob's private key can decrypt the encrypted message. If Eve views the encrypted message in between, she won't be able to decrypt it, because she doesn't have Bob's private key. Only Bob has his private key. When Bob receives the encrypted message, he uses his private key to decrypt the message and is able to read the sensitive contents. Wonderful.

But now, we have a new problem. Since Bob's public key is public (everyone knows it), then, in our example, you may ask: Well, couldn't Eve just throw away Alice's entire encrypted message, and replace it with her own evil message ("Hello this is really definitely Alice. Send the goods to 456 Other Street.") which she encrypts with Bob's public key? When Eve sends the evil replaced message to Bob, Bob would still be able to decrypt it and he would be none the wiser that it had really come from Eve, not Alice. That would be bad!

Introducing the second thing that you can do with Asymmetric Key Cryptography: Signing. Signing is the solution to the problem of authenticity. So, Alice wants to send a message to Bob, and she wants Bob to be certain that it really came only from her. They take the following steps: First, Alice writes her message and sends it to Bob unencrypted, she also encrypts the same message with her private key, and sends that encrypted message too. Note that only Alice's public key can decrypt the message that was encrypted with her private key. Since everyone (including Bob) knows Alice's public key, Bob is able to decrypt the message and if it works and the two messages match perfectly, then Bob knows that it really did come from Alice, and was not tampered with.

Combining these two methods together gives a powerful result. Alice and Bob can communicate with certainty that 1) what they say to each other won't be read by Eve and 2) the messages they receive can only be from each other, and not Eve impersonating them. These are referred to as confidentiality and authenticity respectively.


Back to the problem of trusting the bank with your sheep.

Instead of holding gold to represent value, instead, in a decentralised world we hold bitcoin. I do this by holding onto two encryption keys, one key is secret only to me, and one key is public, that I can hand out to everyone.

Anyone who has my public key can use it to check that I really have the bitcoin. “According to whom?”, you might ask. Is there a central website or vault that they can go to, to check? No, there is not, they do not need to trust any one person. In fact, they don’t even need to trust me. They can check with thousands of blockchain servers around the world, independently run by strangers, none of them centralized in one place, or under the control of one group or government. All of those servers have cryptographically confirmed that "Yes in fact, he does have that bitcoin". Since I could probably convince a few of them to lie and say that I have the bitcoin when I really don't, you need to make sure a large majority of all the decentralized servers agree. This "consensus" problem is one of the core aspects that makes blockchain new and interesting.

I use my private key to send some of that bitcoin to you. Again, do you have to trust me? No sir! You don't have to trust any one person. I use my private key to sign a message out to all the bitcoin servers on the internet, telling everyone that some of my bitcoin is now yours. Since I'm the only one with my private key, all of the servers know that it's really mine, and no trust is needed. Without needing to trust that I’ve sent the funds, now you can just ask all of those servers, and when they all agree, then you know that the bitcoin has really been sent to you. And no bank or government is involved at all!

Be aware that this explanation is a nutshell only, it skips over the details of how bitcoin actually works, but gives you the general idea.


Now that you know roughly how the blockchain works, and that you no longer have to trust any individual bank, company, vault, government, or sheep, you can go ahead and use Bitcoin and other blockchain based technologies with confidence.

Stay tuned for more things you can do with blockchain, including voting, trading, loans, and distributed decentralized computing!

Introduction to Decentralization (Part I)

To explain what decentralization is, let us of course first explore how things used to be: centralized. Let us explore that topic with a distinctly Settlers of Catan flavor.

Centralization Step One

If you own a lot of sheep, and want to trade it for wood, it's difficult to carry around the sheep. They bleat a lot and leave mess on the floor. So instead, you can carry around a small amount of gold, which is worth as much as a whole lot of sheep. Now everyone can just carry gold around, instead of everyone having to carry sheep and wood and stone around. But now, the problem is that your gold can easily be stolen, you need to protect it. So rather than paying an independent bodyguard to protect your gold (who you might not trust, since at least some of the body guards will be gold thieves masquerading as bodyguards). So you instead take your gold to a vault for safe keeping. That vault is trusted by lots of other people who have confirmed that their gold wasn't stolen. And the vault is a lot more secure than one bodyguard. Everyone pays and trusts the vault, and everyone reaps the benefits. But everyone also risks that the entire lot of gold is stolen by the vault operators, or some sophisticated gold thieves. This is centralization, step one.

Centralisation Step Two

Now that everyone trusts the centralized store of value, the vault owners start getting cocky. They change their name from “vault” to “bank”. They start loaning out a little bit of everyone's gold to other people, and charge a fee for that, and as a result, earn a huge amount of gold in fees. They sort of tell you that they're loaning your money out when you give it to them the first time, but you were probably 15 years old and it's also sort of not that clear. But since everyone else is doing it, you just go along with it. And most of the time, most of the people are fine, since when you go and ask for your gold, they give you the right amount, and there are no problems.

But now, you're truly trusting the bank not only to keep your gold and not steal it, but you're also trusting them to not loan it all out to untrustworthy people who won't pay it back, or at least, you're trusting them not to make too many mistakes whilst doing that. After all, if they loaned it all out, and you wanted your gold back, they might not have enough left! That's a lot of trust placed in one organization, in one central place.

In the case that everyone comes to the bank at the same time, and everyone asks for their gold, the bank would be unable to return all the deposited gold, since a lot of it is still loaned out to others. Just like everyone flushing the toilet at the same time, it's a total disaster, and there’s sh*t everywhere. This happens more often than you think. In the recent global financial downturn, Banks and ATMs in Greece limited the amount of cash that could be withdrawn per day.

And you may say, "Well in some countries, your bank deposit is insured by the Government up to a certain amount, for example, $100,000 USD in the US". Very true, however now you have just swapped one centralized entity that you have to trust, for another. If banks are failing, then the situation is already potentially dire, and it's not too far of a stretch to imagine a government failing.

So there are clearly upsides and downsides to centralization.


The underlying problem is that all the assets are centralised in one place, and that if someone were to, for example, rob an extremely large portion of the bank's cash, or if the bank were to declare bankruptcy, then all of the people who trusted the bank would be affected. So the likelihood is low, but the impact is extremely high, and the cost for each person is low. On the other hand, hiring a bodyguard who loses your gold is high likelihood, high cost, and high impact.

There must be a better solution!

How can we arrange the situation so that we do not all need to trust one centralized entity, with low cost? That's what the blockchain solves.

Part II, coming soon.