Let's go over what we talked about in lecture First, we talked about the concept of identity on the Bitcoin network
In Bitcoin, each node’s identity is represented by their public key However, ultimately the public keys are controlled by the owner of private keys Only the private key can be used to spend money Another thing to note about identity is that users can generate as many private/public key pairs as they want How does it work again? Remember that there are 2 to the 160 total possible private keys
It is extremely unlikely that someone might happen to generate the same private key as yours Nor is it at all likely that someone can guess your private key to spend money on your behalf Bitcoin doesn’t have the account balance model that banks have Instead, users spend outputs from previous transactions These specific outputs are called “Unspent Transaction Outputs” or UTXO
The total value of bitcoins you have is the sum of all of UTXOs you own These UTXOs are uniquely identifiable and make tracking payments at the protocol level much more straightforward: The UTXO record system makes it easy for nodes to see how funds change hands between users and UTXOs The UTXO model might not be the most intuitive model for us to understand, but it works well for bitcoin from an architectural standpoint As we mentioned earlier, the blockchain is the key data structure for recording Bitcoin activity New transactions are recorded within new blocks added to the existing, established chain
Once a transaction is recorded, it is close to impossible to undo without changing every single version of this database in the universe The way that the network reaches consensus is through Proof-of-Work How does it work again? Proof-of-Work requires that voters expense a considerable amount of computational power in order to validate transactions But why do we need Proof-of-Work? Because, again, there is no central authority to make sure that one person only vote once, and there is no limitation on how many identities one person can generate, Bitcoin uses computational power as a resource constraint to limit the voting power of malicious entities Proof-of-Work hence aims to make votes expensive for everyone, so that the voting power one has is based on how much computational power one has, instead of based on the number of identities
Given all this information, you can now justify many of the common buzzwords associated with Bitcoin which you may have heard The most common descriptors of Bitcoin are “pseudonymous,” “decentralized”, “immutable”, and “trustless” Pseudonymity is a combination of the words “pseudo,” meaning fake, and “anonymous,” meaning unknown Bitcoin attempts to be anonymous through having every user represent themselves with a random number, the public key However, because it is not impossible to trace back these virtual identities to real world identities, bitcoinit is not complete anonymousity — it is only mimicking anonymity
In Bitcoin, addresses and pseudonyms are synonyms — it’s a fake name, but it can still be used to trace back to youassociated with you with enough effort In addition, decentralization refers to taking an activity that is typically performed by one central entity and repeating the storage of information and computation among more than one party Bitcoin achieves decentralization by having every single participant in the Bitcoin network store the full history of transactions, as we’ve seen This way, every user possesses a copy of the transaction history and does not have to ask anyone else for that information Immutability, referring to the inability to change information, is another property of Bitcoin achieved through decentralization
Once all users in the Bitcoin network decide on the validity of some transaction, it is extremely difficult for anyone, including themselves, to undo their decision This feature helps foster trust among nodes on the network If one wanted to alter the history of transactions, they would have to change every single user’s local history simultaneously, which in the present day is close to ten thousand different users As a result of these three properties of pseudonymity, decentralization, and immutability, we achieve in Bitcoin a trustless network Because every user is by default a stranger to everyone else, one may ask, “How do we trust others in the network? If we do not trust a majority of Bitcoin users, how do we trust Bitcoin?” The Bitcoin protocol ensures that one does not need to trust their peers in order to be certain that any transaction they make will be accurately recorded by the rest of the Bitcoin network
First, the ledger is publicly verifiable Anyone can see any and all information about the history of transactions in Bitcoin You can go to the blockchain and check if your transaction has gone through In addition, the Bitcoin network is secured through the Proof-of-Work consensus protocol designed by Satoshi Nakamoto which changed the way everyone thinks about cryptocurrencies These are the four essential unique properties of Bitcoin: pseudonymous, decentralized, immutable, and trustless
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