Bitcoin provides a means of bypassing trusted third parties in financial transactions by means of a combination of cryptographic proof and honest nodes. Consider the following from the “Bitcoin: A Peer-to-Peer Electronic Cash System” white paper by Satoshi Nakamoto:
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers. In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.”
So as long as the number of honest nodes outnumber the attacker nodes the system integrity remains intact. In other words, the confidence and value within the Bitcoin system must be higher than the incentive to exploit the system from the outside. The self-regulating nature of the Bitcoin system fascinates me, it represents a true free market of sorts, capitalism without controls.
I would be interested in seeing the number of Bitcoin honest nodes versus attacker nodes at a given moment in time if such information exists. This is another area, in my opinion, that Bitcoin and digital currency in general has an opportunity to shine when compared to traditional monetary counterparts. Given that there is no centralized authority controlling Bitcoin, at least at the moment, there is no incentive to withhold such information. Just as there is a public Blockchain showing Bitcoin transactions in real-time, a representation of system integrity might be equally useful and perhaps could prevent attacker nodes from outnumbering the honest nodes as system participants could recruit additional honest nodes should a thread to the Bitcoin system emerge.
Updated – 05.19.14: Altcoins, Bitcoin Network Strength, and Sidechains
Interesting insight into attacks on altcoins by attacker nodes gaining the majority of computing power and overtaking altcoin blockchains from “Rise of the Altcoin Wars”:
“Battle lines are appearing and factions seem to be organizing between proponents of various smaller swarms of new coins. The network power of Bitcoin should safely keep it out of the fray of any tampering. But smaller coins have smaller networks still trying to get established. These are vulnerable and can be subjected to 51% attacks. This attack involves using a concentration of computers that have enough combined hashing power that can overwhelm the smaller currency. Once the attackers have control of the altcoin’s block-chain they can rewrite the coin’s history and make double spending possible. This would cause a breakdown in faith of the coin and possibly destroy it. A 51% attack has already happened for a few coins in the past. (See Feathercoin).”
The Bitcoin network itself appears resilient to such attacks and actually strengthens its competitive advantage when compared to altcoins:
“For the current day, many opponents to digital currencies gleefully point out that bitcoin cannot possibly survive in the long term because “something better might come along”. This is possible, but we can now easily demonstrate that the currency itself is only one small component of the entire picture that makes a digital currency. There is no other coin or technology coming close to the computer resources devoted to protecting the network. The thick protective shell protecting the block-chain is measured in computer hashing power. Using the popular yardstick of the top 500 supercomputers combined; Bitcoin is now about 2,500 times that number and continuing to climb.”
The article goes on to describe another emergent benefit from self-protection:
“So dominant is this power of protection offered by bitcoin, that new development of “side-chains” are being designed to work with it rather than finding some way to compete against it.”
1. Bitcoin Magazine: Rise of the Altcoin Wars:
3. J.R. Sedivy. Bitcoin: A Peer-to-Peer Electronic Cash System Abstract:
4. Satoshi Nakamoto. Bitcoin: A Peer-to-Peer Electronic Cash System: