In this series of articles, I embark on a quest to unravel the complexities of Bitcoin, the revolutionary digital currency. Using the SUCCES model introduced by Chip and Dan Heath in their book "Made to Stick," we will break down Bitcoin into simple concepts, explore unexpected results, provide concrete examples to make it tangible, enhance credibility through evidence-based analysis, and weave emotional stories that inspire a deeper understanding of this transformative technology.
I present to you Article 1 and invite you to help me write up the other articles. Article 1: Simplifying Bitcoin, in the first article, we delve into the world of Bitcoin, demystifying its intricate workings and shedding light on the fundamental concepts. By simplifying the language and removing unnecessary jargon, we aim to make Bitcoin accessible to all readers, regardless of their technical background. Prepare to embark on a journey where complexity gives way to clarity, and the mysteries of digital currency become easier to grasp. We go back in time and look at simple cash systems such as bartering cows, and carving into sticks, as well as ancient cryptography.
Article 2: Unveiling the Unexpected, In the next installment, we will uncover the surprising and unforeseen outcomes that Bitcoin has brought forth. From its impact on financial systems to societal transformations, we explore the ripple effects that have disrupted conventional norms. Get ready to encounter fascinating stories that challenge preconceived notions and reveal the unexpected possibilities that Bitcoin has unleashed.
Article 3: Concrete Examples and Visualization Bringing Bitcoin closer to reality, our third article focuses on concrete examples that make this intangible digital currency more tangible. Through vivid descriptions, visualizations, and relatable comparisons, we paint a vivid picture of how Bitcoin functions, and all of the moving parts it is made up of and how it fits into the broader landscape of finance and technology.
Article 4: Building Credibility, Trust, and Verification Credibility is a cornerstone of understanding Bitcoin. In this article, we delve into the transparent nature of the blockchain and how it fosters credibility through verifiability. By examining hard numbers, statistics, and empirical evidence, we establish a solid foundation upon which the credibility of Bitcoin rests. Discover how this decentralized technology empowers individuals to embrace the mantra: "Don't trust; verify."
Article 5: Emotional Stories that Inspire To truly grasp the essence of Bitcoin, we turn to emotional stories that evoke empathy, inspiration, and a deeper connection to its purpose. From tales of resilience in times of war to the empowering experiences of marginalized communities, stories of philanthropy and sending money home to your family, and the enduring spirit of Christmas, we explore the human side of Bitcoin. Prepare to be moved and inspired by the transformative power of this digital revolution.
Article 6 stories. We invite you to join in on sharing your stories in this article.
Article 7 Join us on this captivating journey as we demystify Bitcoin through the lens of simplicity, surprises, tangible examples, credibility, and emotional storytelling. By embracing the SUCCES model, we aim to equip readers with a comprehensive understanding of Bitcoin, empowering them to navigate this exciting landscape with confidence and curiosity. Get ready to unlock the potential of this groundbreaking technology and embark on a transformative adventure.
Article 1: Or as my daughter would say, the art of tickle. Simplifying Bitcoin. Obsolete technology refers to older forms of technology that are no longer used or relevant in today's modern world. However, understanding obsolete technology is important because it forms the foundation of the current technology we have today. Outdated, remnants of old technology may still be present in our daily lives. For example, the icon representing a telephone often resembles the rotary dial phones that were prevalent decades ago. Even though old technology may seem extremely simple, it is essential to look at the simplified concepts to understand how far we have come. By studying and appreciating obsolete technology, we gain insights into the evolution of innovation, which helps us appreciate and navigate the complexities of the current technological landscape. Therefore I would like to give a chronological overview of some of the components involved in bitcoin to somewhat simplify this complex system. A complex system like a computer or A.I is simply a very long series of 1 and 0 connected together, the fundamental basis is very simple.
The bitcoin white paper says Bitcoin is a peer-to peer electronic cash system. Let's start with the oldest forms of technology for recording cash systems and how it progressed over time: Oral Tradition: In ancient times, financial transactions were based on oral agreements and memory. People relied on verbal communication and storytelling to record and pass on information about debts, credits, and transactions. By the way what did you have for breakfast last week? - Memory is clearly a problematic way of doing accounting.
Clay Tablets: One of the earliest recorded forms of written accounting comes from Mesopotamia around 3000 BCE. Clay tablets were used to inscribe symbols representing various goods, quantities, and transactions. These tablets were often kept in temples or administrative centers and served as records of economic activities. Depending on what writing system they used, and how much time they let the clay to dry, there was a large margin for error. Since they had to be kept in central temples it became a security threat to let people take a peek at the records, so you have to trust what they claim they wrote down. As an ancient Mesopotamian most of your family and extended family could not read so you could not verify the accounts. Papyrus Scrolls: As civilizations like Egypt developed writing systems, papyrus scrolls were used to record financial transactions. Papyrus, provided a more portable and durable medium for recording transactions and accounts.
Abacus: The abacus, invented in ancient Mesopotamia, is a counting tool of beads on rods. It allowed for basic arithmetic calculations and facilitated simple bookkeeping. Of course you have to be careful not to accidently bump into someone operating an abacus, since the beads will all reset to zero.
Tally Sticks: Tally sticks, emerged as a form of record-keeping in medieval Europe. They were notched pieces of wood split in half, serving as a way to record and verify transactions between parties. Each half of the tally stick contained notches representing the amount owed or other relevant information. Tally sticks served as a practical way to verify transactions between parties, preventing any disputes or claims of additional debt. Each party held one half of the split tally stick, and the notches made on the stick represented the agreed-upon amount owed. The beauty of tally sticks was that the notches were unique to each stick, ensuring that any alterations or attempts to claim additional debt would be immediately evident. Imagine a scenario where you owed your friend some money, and you both held a tally stick. The notches on your stick would precisely match the notches on your friend's stick, creating a perfect puzzle-like fit. It was like a "financial fingerprint" that allowed you to compare and verify the notches, ensuring that no one could sneakily claim you owed them more. If Agnes tried to argue with Bartholomew. Telling him, "Pray, hark! Thou art indebted an extra notch unto me!" you could simply align the sticks and reveal the mismatch. It would be as clear as day that the notches didn't correspond, instantly shutting down any attempts to manipulate the debt. Tally sticks were like a foolproof "financial handshake" between parties, ensuring that both sides had an irrefutable record of the transaction. It provided a tangible and straightforward way to confirm and settle debts, acting as a shield against false claims and disputes.
Paper Ledger: With the invention of paper in China during the Han Dynasty (206 BCE – 220 CE), ledgers began to be recorded on paper using ink. This shift allowed for more extensive and detailed record-keeping, enabling businesses to track their financial activities with greater precision. However, there was an amusing catch – people needed to know how to read and write! Imagine a bustling marketplace where traders recorded their transactions in ink on paper ledgers. If someone lacked literacy skills, a transaction for 100 coins could inadvertently become 1,000 or even 10,000 coins! Moreover, there was the chance that a mischievous accountant could manipulate the numbers, turning a profit into a loss or inflating their own riches. Accountants had to be meticulous and trustworthy, with a keen eye for accuracy, to prevent unintentional chaos or deliberate financial trickery. It was a time when literacy and trustworthiness were the "superpowers" of the accounting world, ensuring that the dance of numbers on paper ledgers remained an organized and reliable performance.
Double Entry Accounting: Luca Pacioli, the mathematical maestro of the 15th century, turned accounting into a symphony of numbers. He wrote the book "Summa de Arithmetica" in 1494. In this whimsical tale, let's meet two merchants, Agnes and Bartholomew, who embrace the revolutionary concept of double entry accounting. They quickly realize that for every financial action, there is an equal and opposite reaction—a bit like Newton's law of accounting - Pacioli identified Newton’s law 200 years earlier, but he applied it to finance and not physics! When Agnes sells her handmade pottery to Bartholomew, she records the sale as a credit in her ledger. Meanwhile, mischievous Bartholomew sneaks a peek at Pacioli's book and discovers that he must record the purchase as a debit in his own ledger. It's like a synchronized dance, where Agnes’s credit step matches Bartholomew’s debit shuffle! What if Agnes accidentally spilled ink on her ledger, causing her credit to turn into an inkblot monster, ready to devour her financial records! Poor Bartholomew, in his excitement, mistakenly records a purchase of "500 cows" instead of "500 beers.” Suddenly, his ledger is overrun by a wild stampede of imaginary bovines! Thankfully, Pacioli's ingenious system saves the day. Agnes and Bartholomew can easily spot their errors by ensuring their debits and credits balance. It's like an accountant's version of tightrope walking—carefully maintaining equilibrium between the two sides of the ledger. If they get a bit wobbly, they know they must go back and untangle the inkblots or shoo away those rogue cows! With double entry accounting, the comedy of errors in previous systems begins to fade away. The precision and balance of recording both debits and credits ensure that the financial story remains cohesive and accurate. It's a tale of evolution, from inkblots and stampeding cows to the precise balance of double entry accounting—a comedic journey that laid the foundation for modern financial wizardry! ** Digital accounting:** Computers brought forth a realm of unparalleled efficiency and accuracy. It bestowed upon accountants the power to harness the magic of algorithms, automation, and real-time data analysis. No longer bound by mountains of tally sticks, stacks of ledgers and mountains of paperwork, they now traversed a digital wonderland, armed with spreadsheets and cutting-edge accounting software. Like a wizard's spell, digital accounting conjured instant calculations, seamless data entry, and sophisticated reporting capabilities. Accountants could now explore financial landscapes with ease, uncovering hidden patterns and trends that would make even the most seasoned fortune teller envious. But beware! In this realm of digital enchantment, the mischievous gremlins of human error still lurked. A misplaced decimal point or a typo could trigger inflated numbers or wonky formulas. It became a dance between mortal accountants and the binary realm, where precision and attention to detail were essential for a flawless performance. In the early days of international communication, such as when a cable was laid between the USA and England, the concept of sending money through the wire was not feasible. Instead, promises of payment were made, acknowledging the transfer of value without physically moving the currency. This concept aligns with the underlying principles of digital transactions, where the transfer of value is based on centralised digital records and cryptographic assurances. When you make a payment with digital accounting, you are not physically sending money directly. Instead, you are authorizing a transfer of value and relying on a centralized entity to facilitate and settle the transaction. This is often done through the promise of payment, represented by digital records and account balances. This means you are not making peer to peer payments, more like peer to company to bank to bank to company to shop to peer payments, and each intermediary takes a cut of the payment. So this is an electronic cash system but Bitcoin comes in and creates a peer-to-peer electronic system.
**Blockchain Technology: **The next step in the ever-evolving world of accounting and beyond. Imagine a digital ledger that transcends the boundaries of traditional record-keeping, where trust and transparency reign supreme. Picture a vast network of interconnected computers. Each computer holds a copy of the ledger. To continnue our analogy, fair Agnes finds herself amidst a wondrous realm where not only she, but a multitude of esteemed counterparts, possess their very own copies of the digital ledger; Bartholomew, Cecilia, Desmond, Eleanora, Ferdinand, Gertrude, Helena, Isolde, Jasper, Katherine, Leopold, Matilda and countless others (in the millions) join her in the grand endeavor of upholding the ledger. An unbreakable chain of blocks, each containing a collection of transactions. It's a virtual fortress, safeguarding the integrity of data with cryptographic locks and keys. In the case of clay and paper entries and even tally sticks they were kept in centralised places which were easy to manipulate by the authorities. With blockchain you will have to manipulate everyone’s entry, but you do not have access to their entries in the first place.
Let's dive into that imaginative world where each block in the blockchain can be envisioned as a ledger book with limited space for transactions. In this analogy, we can visualize the blockchain as a collection of these ledger books, each representing a block. Imagine each ledger book has a finite number of pages, and on each page, there's space for a certain number of transactions, let's say 210,000 transactions. When these pages are filled with transactions, it's time to close the book and start a new one. The process of creating a new ledger book, or block, involves something called proof of work. Miners, who are participants in the Bitcoin network, compete in a guessing game. The first miner to guess correctly gets the privilege of adding the next block to the blockchain. This process ensures the security and integrity of the network, as it requires computational effort to validate and add new blocks.
Occasionally, while miners are guessing, another miner may successfully complete a new block, creating an empty ledger book ready for transactions. In this case, the network simply moves along and starts using the newly created block as the active ledger book. This seamless transition allows for continuous recording and verification of transactions in the blockchain. This analogy helps illustrate how the blockchain operates as a sequence of ledger books, each with a finite capacity for transactions. The proof-of-work mechanism ensures that new blocks are added to the blockchain, while the occasional availability of empty blocks allows for uninterrupted transaction processing. This also means if you wish for your transaction to be recorded, if you request while few others wish to do so then it is not much work for these book binders to add your transaction. However, if they are frantically trying to write down 210,000 transactions and add a new ledger book then they will charge you a larger few to include your transaction history.
By envisioning the blockchain as a collection of ledger books, we can better understand the concept of limited transaction capacity, the role of miners in securing the network, and the seamless transition between blocks when a new one is created. To really explain mining, we will need to look into cryptography and hashing.
Cryptography Here's a chronological list of ciphers and developments in cryptography throughout history:
Caesar Cipher: Developed by Julius Caesar, this substitution cipher involved shifting each letter of the message by a fixed number of positions. Original Message: HELLO Shifting Value: 3 Encrypted Message: KHOOR
Scytale: Used by the ancient Greeks, the Scytale cipher involved wrapping a strip of parchment around a cylinder and writing the message vertically. It could only be deciphered when wrapped around a similar-sized cylinder. Original Message: OPEN SESAME Wrapped around a cylinder of specific diameter, resulting in a different arrangement of letters. Only when wrapped around the correct diameter will the original message be read.
Atbash Cipher: Used in Hebrew and later adopted by other cultures, the Atbash cipher involved substituting each letter of the alphabet with its reverse counterpart (e.g., A becomes Z, B becomes Y). Original Message: HELLO Encrypted Message: SVOOL
Vigenère Cipher: Developed by Blaise de Vigenère in the 16th century, this polyalphabetic substitution cipher used a keyword to determine different shifting values for each letter of the message. Original Message: HELLO Keyword: CODE Encrypted Message: JGNNQ
So you write out your keyword over and over, codecodecodecode and align it with the encrypted message JGNNQ allign J with the letter c and find out what the first letter is on the row and find H. With some trickery and guessing one could identify the vowels and start guessing at the words to break the code.
Enigma Machine: Developed in the early 20th century, the Enigma machine was a complex electro-mechanical device used by the Germans during World War II. It employed rotors and plugboard connections to encrypt and decrypt messages. Original Message: ATTACK AT DAWN Encrypted Message (Output from the Enigma machine): KQUCZ LV VFFYKQUCZ LV VFFY
The engima machine took the Vignère cipher idea and put each alphabet on a rotating wheel, each time a letter was inserted the wheel rotated, once the alphabet was cycled the wheel next to it would also start turning. On top of that it was possible to swop letters arround. This meant however to decode a message you needed to know the orientation of the wheels and which letters were mixed around. Decoding a message was complicated so they created cards with the keys and changed them daily. It would look something like this, set the wheels to Q R M then swop these letters with each other. a-s, d-f, g-h, j-k, l-p. With only three wheels it was possible to make computers that tried every permutation until they guessed right, but adding 5 wheels made it exponentially more difficult. The enigma machine algorithm was eventually cracked.
Digital enigma. The mechanical engima machine had to be portable so it could only house so many wheels. With a digital enigma it is possible to have 1000 wheels, and have each wheel shift a different number of places and have each primary number wheel shifting anti clockwise, the ammount of permutations for a computer to calculate will take a very long time. The encrypted message KQUCZ LV VFFYKQUCZ LV VFFY shows spaces between words and how many letters there are in those words... This became a weakness of the enigma machine to exploit it.
**Diffie-Hellman key exchange: ** After the Enigma machine, the chronology continues with the development of various cryptographic techniques and algorithms. One notable advancement is the Diffie-Hellman key exchange, which was proposed in 1976. It introduced the concept of public-key cryptography, allowing secure key exchange over an insecure communication channel. Imagine you are sending a message via post, you cannot trust the post office to not read your messages so how can you keep them safe? let's consider colors. Imagine you have a shade of blue and a shade of red. Each shade represents a secret key held by different parties. Now, when you want to communicate securely with someone, you mix your shade of blue with your secret key and the recipient's shade of red with their secret key. The result is a unique public color, let's say purple. The analogy here is that the public color (purple) represents the encrypted message that you send to the recipient. An eavesdropper, who intercepts the communication, can observe the public color (purple) but cannot determine the original shades of blue and red (the secret keys) that were used to create it. This makes it difficult for the eavesdropper to decipher the message or tamper with it without knowledge of the secret keys.
In the same way, the man-in-the-middle attack refers to a scenario where an attacker intercepts and alters communication between two parties. In our analogy, the attacker would try to intercept the public color (purple) and substitute it with their own color, resulting in a different message being received by the intended recipient. The security of the communication relies on the fact that the attacker cannot determine the original shades of blue and red (the secret keys) and therefore cannot perfectly mimic the original public color (purple). Of course they are not really using colours but complex mathematical algorithms.
**RSA Encryption: **Invented in the late 20th century by Ron Rivest, Adi Shamir, and Leonard Adleman, RSA encryption is a public-key cryptographic algorithm based on the difficulty of factoring large prime numbers. RSA is like having a special lock with two special keys: a big key and a small key. Here's how it works: Your friend first creates the lock by picking two really big numbers. We'll call them Number A and Number B. These numbers are super special because it's really hard to figure out what they are by just looking at them.
Now, your friend does some special math using Number A and Number B. This special math gives your friend two keys: a big key and a small key. The big key is like the lock, and the small key is like the key that can open the lock. Your friend gives you the big key, and you keep it really safe. You also keep it a secret, just like a secret code. When you want to send a secret message to your friend, you put the message in a special box and lock it using your friend's big key. This means that only your friend can open the box because they have the special small key that matches the big key. Now, you send the locked box to your friend. Even if someone else tries to open the box, they won't be able to because they don't have the matching small key. Once your friend receives the locked box, they can use their small key to unlock it and read the secret message inside. Since your friend is the only one with the small key, the message stays safe and secret.
The really cool thing about RSA is that even though the big key is used to lock the box, it's almost impossible for someone to figure out the small key just by looking at the big key. It's like having a secret code that only your friend knows how to crack. So, RSA encryption is a way to keep secret messages safe by using special math and keys. It's like having a super secure lock and key system where only your friend can unlock and read the secret messages you send.
Elliptic Curve Cryptography (ECC): Introduced in the mid-1980s, ECC is a public-key cryptography method that relies on the mathematics of elliptic curves. It provides strong security with shorter key lengths compared to other asymmetric encryption algorithms. Elliptic curve cryptography (ECC) is a type of public-key cryptography that uses the mathematics of elliptic curves to secure data transmission and encryption. Here's a simplified explanation of how it works: Imagine a special curve on a graph, called an elliptic curve. This curve has certain mathematical properties that make it suitable for cryptography. ECC relies on the fact that it is computationally difficult to solve certain mathematical problems related to elliptic curves. These problems involve adding, subtracting, and multiplying points on the curve. In ECC, each participant has a pair of keys: a private key and a public key. The private key is kept secret, while the public key is shared with others. The private key is used to generate a unique point on the elliptic curve. This point serves as the starting point for cryptographic operations. To encrypt a message, the sender uses the recipient's public key and performs a mathematical operation involving the curve and the recipient's public key.
The result of this operation is a new point on the curve, which becomes the encrypted message. This process is computationally difficult to reverse-engineer without the recipient's private key. The recipient, who possesses the private key corresponding to their public key, can perform another mathematical operation using their private key and the received encrypted message to decrypt it and reveal the original content. Elliptic curve cryptography offers several advantages over other encryption methods. It provides strong security while using smaller key sizes, making it computationally efficient and well-suited for resource-constrained devices like mobile phones and embedded systems. ECC is widely used in various applications, including secure communication protocols, digital signatures, and cryptocurrency systems like Bitcoin.
SHA-256: A cryptographic hash function, SHA-256 (Secure Hash Algorithm 256-bit) is widely used in blockchain technology, including Bitcoin. It produces a fixed-size hash value as a digital fingerprint of data, ensuring data integrity and authenticity.
Imagine you have a box, and you want to turn whatever you put inside the box into a unique identifier. SHA-256 is like a special machine that does this. You can put any kind of data into the SHA-256 machine, such as a word, a sentence, or even a whole book. It doesn't matter how big or small the input is. The SHA-256 machine takes the input and processes it through a series of mathematical operations. It shuffles and rearranges the data in a way that's very difficult to reverse-engineer or figure out. After the data goes through this process, the SHA-256 machine generates a unique string of numbers and letters as the output. This string is called the hash value. The important thing about SHA-256 is that even a tiny change in the input data will produce a completely different hash value. It's as if the machine transforms each input into a fingerprint that's unique to that specific input. The hash value is always the same length, regardless of the size of the input. For SHA-256, the hash value is always 256 bits long, hence the name. The generated hash value is a compact representation of the input data. It's like a summary or a fingerprint of the original information. It's also worth noting that the hash value is always the same length, regardless of the size of the input. SHA-256 is widely used in various applications, including cryptocurrencies like Bitcoin, where it is used to ensure the integrity and security of data. In simpler terms, SHA-256 takes any kind of data you give it and turns it into a unique and fixed-length string of numbers and letters. It's like putting something into a machine that spits out a special code that represents what you put in. This code is unique to the input, and even a small change in the input will give you a completely different code. It's a way to make sure that data remains secure and tamper-proof. It is a way of creating a unique fingerprint based on any length of data and it is tamper-proof. Unlike the other encryption methods whether your message is one letter or an entire library of books the output is always 64 bit alphanumeric. There is no way at guessing your input, you could have written in arabic, cyrilic, and chinese script all the the same document and a string of sha 256 output does not reveal that. Can you guess what I input here: 0aad7da77d2ed59c396c99a74e49f3a4524dcdbcb5163251b1433d640247aeb4
Digital financial systems began to use public-private cryptograhpy yet we still had to rely on trusted institions to give permission for the information to be sent. If history has taught us anything, it is that when you have so much power you will become corrupt eventually. So instead of relying on institions we rely on everyone. If you spend money to run a computer to play the guessing game and you have bad intentions, you are going to have to convince at least 51% of the other people who are also keeping record of the ledger why they should change it to your benefit. If you cannot convince them you just spent a lot of money, time and energy to accomplish nothing. If however, you spend your time, and energy on playing fair, everynow and then you might guess correctly and be rewarded some bitcoin.
That is a somewhat simplified approach to looking at bitcoin. Feel free to comment and add your simplified ways of explaining the underlying technology of bitcoin, cryptography, and finance in general.