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Bitcoin and the Byzantine Generals Problem

Before the Bitcoin protocol was invented, most computer scientists thought a system like Bitcoin was impossible because of a famous problem in computer science called the Byzantine Generals Problem.

The problem, in a nutshell, is how to coordinate among distributed nodes to come up with a consensus that is resistant to attackers who are trying to undermine that consensus. A significant component of the solution is the proof-of-work algorithm, which is the main purpose of so-called Bitcoin miners.

The mainstream press has ignored the importance of this computer science breakthrough. When the mainstream press writes about mining, it either ridicules it:

Bitcoin is digitally “mined” by computers running an algorithm. (If you just rolled your eyes, you’re not alone.)

Or calls it wasteful:

One thing I haven’t seen emphasized, however, is the extent to which the whole concept of having to “mine” Bitcoins by expending real resources amounts to a drastic retrogression — a retrogression that Adam Smith would have scorned.

How much does the existing banking/payment infrastructure cost? One reasonable measure are the fees charged. Standard online payment fees are 2.5%, not including the added costs fraud (chargebacks plus transactions blocked out of fear of fraud). Bitcoin payment fees are close to zero and fraud is impossible since Bitcoin is a bearer instrument.

 

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    Chris Dixon on Bitcoin.
  7. gbattle said: Even if a Bitcoin type mechanism were used for transfer of funds, given the above solution, it would be a game changer. Which bank will do it first?
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