Theory of Bitcoin: The Bitcoin White Paper, second paragraph

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Bitcoin is not “secured by cryptography”! That’s important to understand, and you will understand it better after watching the latest “Theory of Bitcoin” episode with Dr. Craig S. Wright and Money Button founder (and now Engineering Head, Fabriik Smart Wallet) Ryan X. Charles.

Such is the level of minutiae the pair delve into in these conversations explaining Bitcoin philosophy, we’re in the third episode of the “Bitcoin White Paper” series and we’re only up to the second paragraph of the Introduction. However this is probably the right time to go deep, as it brings clarity to the technical details that come later.

Trivia: Dr. Wright prefers Hieronymus Bosch to Van Gogh. It’s one of the many points that help to explain Bitcoin without actually talking about Bitcoin; something of which these video discussions have several.

Understanding Bitcoin’s (non-cryptographic) security model

Much of this discussion revolves around how Bitcoin is made secure. For many years, they point out, academics thought that a decentralized, peer-to-peer, timestamped server was an impossibility. And this is why it was necessary to examine security models outside the computer science field to find the answer.

This is why it was probably only possible for Bitcoin to come from the mind of a polymath who’s studied a diverse range of fields. Dr. Wright talks about his experience analyzing the behavior of botnets, the rationality of criminals, and economic incentives both honest and dishonest, and how it led to Bitcoin’s security model.

“Based on cryptographic proof instead of trust”—what does that mean? Charles asks. Dr. Wright explains how this kind of proof can verify an incident occurred, the identity of the parties involved (using external methods), and the details of the transaction itself—but Bitcoin’s security is actually economic in nature.

This is why, if you hear someone say “Bitcoin is secured by cryptography,” it means they’re repeating something they’ve heard elsewhere and probably don’t understand Bitcoin.

Satoshi Nakamoto‘s words have been misunderstood often. But “we’re talking about normal parlance, not the hijacked language,” Dr. Wright says.

Does such thing as “cryptographic proof” actually exist? Charles asks.

Yes, but only as an attestation. It can attest to a state. In law, digital signatures only work if they’re attached to a real-world identity. Because being able to decrypt something is not “proof” of anything, by itself.

Ergo, the “proof” that prevents the double-spending of a Bitcoin transaction is actually Bitcoin’s public ledger, not the cryptography. The hash itself isn’t the security, it’s the fact you broadcast it to everyone.

Timestamping and the rationality of being honest

Using hashes and proof-of-work is merely the best way to order events in time. And with money transactions, timing is everything—the first transaction is always the one that counts, at least in terms of what money went where.

It’s computing power, CPU power, that processes transactions (not the hashing power itself). Dr. Wright says.

“I’ve heard people very specifically misunderstand this point,” Charles says. This leads to a brief but still-relevant tangent on how and why it’s been misunderstood, why the rationale and use-cases for BTC seem to change regularly, and the various agendas people may have behind arguments to keep block sizes artificially small.

Economically rational behavior is what keeps Bitcoin honest, because it keeps those who’ve made large investments in processing Bitcoin transactions honest. It makes no sense to attempt a double-spend even with 51% of the network. There’s the issue of whether any money you could potentially make from doing so is really worth it, for one (spoiler: probably not). There is a cost to committing a crime, Dr. Wright says. How long can you keep the double-spend valid? Can you actually “capture” the money you “made” from the action, and then continue to avoid detection and retribution forever? (evidence on the blockchain ledger is permanent and widely disseminated, remember).

Criminals are often more rational in their actions than the average person, Dr. Wright says, for this very reason. Thus, the Bitcoin blockchain itself remains honest even if a few participants aren’t.

In the last section of the episode there’s another tangent into objective truth which leads to a discussion of art appreciation, and the aforementioned Dutch painters. Overall it’s another fascinating dive into not only Bitcoin, but the minds and motives behind creating it. This extra knowledge not only builds a greater understanding of Bitcoin, but is also strangely comforting the next time you get into a discussion about Bitcoin yourself.

To watch previous episodes of the Theory of Bitcoin, check the Theory of Bitcoin: White Paper YouTube playlist here.