Read the full article on my personal blog here.

Many of the multitudes of problems surrounding the implementation of Bitcoin come from my failure to explain things to people. In part, I did not realise the difference in individuals who might want to jump on board with Bitcoin in the early days. Bitcoin implements what is known as traceable pseudonymity [1]. In particular, the proof-of-work algorithm in Bitcoin acts to associate nodes (miners) and their facilities. One of the problems that have come about stems from the line in my paper referencing proof-of-work and explaining that an alteration of the database (blockchain) “quickly becomes computationally impractical for an attacker to change if honest nodes control a majority of CPU power”.

The erroneous understanding of the white paper has led to many problems. Firstly, a node is defined in the white paper as what is now commonly defined as a miner. A separate layer sits above such supernode peers, running an SPV connection. Miners do not secure the network using hash power. Here lies a critical difference; hash power presents a limited subset of what nodes must achieve in order to be a part of the network.

The steps to run the network are as follows:

1) New transactions are broadcast to all nodes. 2) Each node collects new transactions into a block. 3) Each node works on finding a difficult proof-of-work for its block. 4) When a node finds a proof-of-work, it broadcasts the block to all nodes. 5) Nodes accept the block only if all transactions in it are valid and not already spent. 6) Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.

Hash power presents a limited aspect of the process. Hash power involves each node working on a difficult proof-of-work that is associated with an individual block. It is not the most important and critical aspect of Bitcoin. One of the aspects expressed by people who oppose my vision of Bitcoin and ones who have sought to change it since I first started talking about it in 2008 comes from the fact that they seek a system that cannot be controlled through law and legal processes. The white paper explains that it is impractical for an attacker to change the blockchain, which is not the same as saying that the blockchain cannot be changed. Importantly, the blockchain can be changed when honest nodes agree on the changes. Nodes (miners) who are subject to a court order could, for instance, write a change to the blockchain and reallocate the proceeds of crime to another address when it comes to either freezing or seizing bitcoin.

The possibility of doing so is not something that people associated with Bitcoin Core want governments to know. I developed a distributed proof-of-work system as the core or giant node of Bitcoin as it will always aggregate into large corporate entities as such. That is, Bitcoin always ends with competing organisations that hold information in data centres. The economic nature of Bitcoin is such that even if a proof-of-work system could be developed that was ultimately ASIC-proof, it would always lead to the formation of large corporate entities that would compete to validate transactions into blocks.

In the USA, under the Computer Fraud and Abuse Act (CFAA), we can easily show how “51% attacks” and other consensus attacks violate criminal law. Similar laws apply in most other countries. The CFAA is “principally a criminal statute prohibiting ‘fraud and related activity in connection with computers’” [2].

Read the full article on my personal blog here.