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In the Bitcoin white paper, I specified how it is possible to verify payments without running a full network node. The distinct specifications and definitions are important: Section 5 of the white paper defines nodes in Bitcoin; more critically, to be a node, you need to be mining transactions. SPV or simplified payment verification is a critical aspect of scaling Bitcoin. I thought it was rather clear and obvious when I released the white paper, but it seems that people have overlooked or misunderstood all of the different aspects. The truth of the matter is, nobody realised how simple SPV could be. It is critical because you cannot scale the blockchain without SPV, and more importantly, SPV is the peer aspect of Bitcoin. Right now, derivative systems that have forked away from Bitcoin, such as BTC, are not peer-to-peer at all.
By definition, ‘peer-to-peer’ refers to the direct exchange between individuals or other parties. As such, a consumer, Alice, who wishes to purchase goods from a merchant, Bob, would send a transaction directly to Bob. Bob can validate it and send it to the blockchain for clearing and settlement. The process is peer-to-peer. The miners or nodes in the network act as a distributed intermediary. No one intermediary needs to be directly trusted, which differs greatly from any of the current systems. Winston Churchill supported the reintroduction of the gold standard, although at a mispriced level, as it stopped the knaves in Parliament from altering values for political concerns. A distributed system enables a method that will stop such knaves seeking to alter the monetary supply yet not turn them into trusted third parties.
Users in the system are only required to maintain a copy of the block header to which they can compare transactions. At present, the block header is under 50 MB in size. Many image files can exceed such levels. A decade from now, the growth will only be linear. So, we have a system that scales by Moore’s law exponentially yet takes a linear amount of resources. There are a few systems that could not keep block headers in memory today.
Network nodes or miners would provide users with the longest proof-of-work chain. A user could implement a Bayesian system to ensure that they had the longest chain. Rather than checking with one miner, they would query multiple random nodes. In doing so, it is possible to ensure very simply and without much bandwidth that they have the longest path.
Verification is reliable in the system as long as the honest nodes control the network. It is important to note that network miners act within the law. A network node involves investment. Today, even small miners invest hundreds of millions of dollars in their systems. More importantly, miners are geographically located and cannot easily move, making them subject to the provisions of law, where a dishonest miner would be liable to losses. Bitcoin was never designed as a system that acts outside of the real world. In fact, the reason that the word honest is mentioned 15 times in the white paper is that it relates directly to acts such as the U.K.’s Fraud Act 2006.
The result is that once Bitcoin achieves any level of scale, it comes under the purview of law. Game theoretically, the game to a miner inclusion and acting as an attacker is minimised by the losses that miners will face. I had written in an early draft of the white paper that transactions would only be vulnerable to reversal. It is so because Bitcoin is not designed to be a system that acts outside of the controls of law. It is a system that supports honest trading and allows the capture and sequestration of transactions that can be shown to be associated with criminal activity.
An attacker that can overpower the network can work with a network node only for as long as they can continue to overpower the network. Which is something that would be quickly noticed. Existing miners would be able to determine ‘double spends’ within seconds. At worst, an attacking miner who built a chain six blocks deep would on average be determined after an hour or so, when all would be rejected outright. The myth that Bitcoin acts outside the law has been propagated by those seeking to create criminal systems, but it is a false and malicious lie and one that is easily discredited. As governments, regulators, and law enforcement start to wake up and see the true design of Bitcoin, they will start to understand that it is a system that is friendly to law. It assists in the tracing of transactions, and provides a high level of privacy for the small cash like transfers whilst also being able to immutably record money laundering and crimes.
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