Like most houses, the arrangement between the milkman and Satoshi’s mother was such that he would supply milk for the entire month and collect the payment for the month as a whole on the 1st of the next calendar month.
To keep track of how much milk was taken, Satoshi’s mother and the milkman kept a record of the same in their respective diaries.
More often than not, there would be a quarrel regarding the quantity of milk due to non matching entries.
So now, they decided to sign a copy of the transaction on a daily basis so that they couldn’t quarrel about its authenticity in the future.
Now came the question of who should keep a copy of this transaction. They definitely didn’t trust each other to maintain it. Enter, the lactose intolerant neighbor who had been witnessing this progress from the very beginning. She offered to keep the file containing all the transactions safe from both of them and collect payment and disburse payments on behalf of them, in exchange for a service fee.
All seemed to be going well and the neighbour kept becoming richer with a gradual increase in service fees. However, the neighbour was a greedy women and wanted more than she deserved. She came up with a plan and decided to replace the original transactions with forged documents every month. She started increasing the bill for Satoshi’s mother gradually while reducing the payments accrued to the milkman.
Satoshi was growing older and his dislike for milk increased. The consumption of milk in the household was continuously on the decline, however the bill for milk was continuously on the rise. Satoshi’s mother realised that there was something wrong and started keeping a photocopy of the file containing the original transactions. She soon realised that the records were being changed and did not understand who she must confront and whether or not her neighbour and the milkman were co conspirators.
She was also worried that nobody would believe her and needed other witnesses to prove the faulty records and expressed her concern to Satoshi.
Meanwhile, the Milk Man also realised that he was being conned and did not know who to trust.
Satoshi wanted to help his mother and all the mothers around the world.
He came up with an ingenuous solution tackling each individual point of failure of the existing record keeping system. Various Conspiracy theories that one could arrive at based on the information Satoshi and the Mother had:
The Milkman could be forging the records stored with the Neighbour.
Satoshi’s Solution:
Instead of using a single file to store all transactions, the use of multiple files storing each transaction arranged chronologically. The files are arranged in such a way that if one tries to take out even one file from the order, the entire stack collapses.
If the Milkman were forging the records, he will now have to replace all the files in the stack.
This requires more time and the milkman simply wont be able to have undetected access to the files for such a long period.
However, the problem continued. The neighbour had enough time to manipulate and create a new set of files altogether.
The next suspect on the cards was the neighbour. The theory was that The neighbour was taking advantage of her power and was manipulating the transactions.
Satoshi’s solution:
Instead of just storing a copy with the neighbour, a copy of all these transactions can be kept with everybody in his apartment complex. This in itself solved the problem for his mother.
To make it more secure, he created a mechanism in which all these records stored with each individual was to be scanned on a regular interval so as to make sure all records were the same. Any outliers are replaced by the data in majority of the records on the network.
This system posed a new problem, each of the neighbours now had data regarding the milk consumption of Satoshi’s household which is a private information. To tackle this instead of recording entries with their names, Satoshi decided to use aliases. The information about the alias and its transaction history is known by all the neighbours, however , nobody knows which alias belongs to whom.
Consequences:
Nobody knows private information about anybody.
Data entered into the system is authentic and validated by the stakeholders ( in our case consensus between Satoshi’s mother and the milkman regarding the transaction of that day.)
It is impossible to modify records made earlier.
There is no single point of failure.
There is no need to trust the Neighbour and pay her hefty fees.
Now, just replace the neighbour with Centralised Banks, and the milkman and the mothers with various players in a marketplace.