Kyle Wang


Understanding Bitcoin Transaction Verification: A Children’s Story

Once upon a time in a land far, far away, there was a wonderful kingdom filled with all manner of candies and the ants who loved them. From beautiful sunrise to gentle moonset, the Candy Kingdom was filled with the rich laughter of newborns, the wrinkling of candy wrappers, and the happy taps of dancing ant feet.

For almost a hundred years now, the wise Ant Queen has ruled over its antenna-waving denizens, who spend their days making the kingdom sweeter and more sugary than ever before. Through hard work and short breaks to “treat oneself”, the ants labored to make and distribute the best candy out of their candy factories across the land.

But things haven’t always been so dandy in the kingdom. Not too long ago, the glistening ripples of chocolate streams and the dazzling heights of rock candy mountains conceal treacherous, twisting paths filled with terrible beasts and bandits seeking to kill the kingdom’s sugar high and make its candy their own.

Twix Termites regularly chewed through honey dams, flooding entire towns. The dastardly M&Mimic Spiders would ensnare ant couriers and steal her Majesty’s royal candygrams, distributing fake copies for evil and profit. The worst were the Starburst Scorpions, who would poison entire candy fields, ruining them for multiple generations of ant babies.

Deadly M&Mimic Spider in a nefarious black hat chases ant citizen, intending to duplicate and modify her Majesty’s candygram containing crucial information intended for a neighboring kingdom

What a dark time it was indeed.

The Ant Queen’s Serendipitous Meeting with the Great Spirit

Unable to buy the new lollipop cannons needed to defend her castle, the then-young Ant Queen realized there was no reliable way to communicate with the neighboring kingdoms for help. Her candygrams never seemed to make it to their destinations in one piece, while the replies from her friends seemed strange and garbled, as if written in an alien hand. She could never be sure what was real or complete.

If only there was a way to safely and securely deliver these critical communications! Candy Kingdom’s survival depended on it.

In her most desperate hour, it is said in ant legend that she heard the fulsome whisper of the great Ant Spirit, Skitoshi Nak Antmoto:

“Put away your ant tears, my Queen. Know that I am Nak Antmoto, spirit of all who desire pure, high-quality candy with on-time and unfettered delivery. Behold the great underground CandyChain, the eternal record of ant speech, and that the ant people have been blessed to place all true candygrams beyond reproach.” — Skitoshi Nak Antmoto, Ant Spirit
Never Stop the Praise

And the Spirit Nak Antmoto saw everything that he had made, and behold, it was very good.

With the will of the spirit coursing through her, the Ant Queen rallied her subjects. “Push out the haters,” she said, “cuz we’re going straight to the underground!”

With a graceful twirl of her antenna, the Ant Queen proceeded to show them just how it was done. One by one, her ant subjects joined her in the groovy hive dance of her people, singularly united in a common purpose. Together, arm-in-arm, the queen and her people descended to the great tunnel forged by the ant spirit. The way was clear.

The Candygram Collectors

Back in present day, the Ant Queen surveyed the magnificent operation that had literally changed the entire underground landscape of Candy Kingdom. Deep beneath Candy Kingdom’s milk chocolate crust, the ants toiled away beyond the reach of eight-legged charlatans and carpetbaggers eager to wreak havoc and run amok.

Taking a seat in her ant palanquin, she saw candygrams with hers among them carted into the tunnels by the hundreds. By the grace of Nak Antmoto, all citizens of her kingdom and those surrounding now need only look at the CandyChain to see the true content of these critical communications.

She saw the collector ants were hard at work, packing these crucial messages with their lovely royal seals into their blessed candy boxes. It was truly every ant’s dream that one day his box would be accepted by the great CandyChain. But there was still much work to be done, for while the great ant spirit giveth, he also demandeth… a lot.

After each ant has filled his box to the brim with candygrams across the kingdom, he must move on the next chamber and participate in a grand ritual, a contest of wills requiring significant determination and spiritual fortitude. Only the champion will be able to approach the incomparable CandyChain add his personal box of candygrams to the annals of history.

The floor of the grand ritual chamber is filled with animal crackers of every conceivable type, size, and shape. Facing the entrance stands an enormous wall, in front of which an innumerable crowd of hopeful ants stand at attention.

The Grand Ritual

The great ant spirit, Blessed is He, is suddenly made manifest, shifting earth and stone to create a strange yet distinctive silhouette on the massive chamber wall. The ants rush into a frenzy, scrambling around the chamber and competing to find just the right animal cracker that matches the shadow to solve the puzzle. Some ants, the queen noticed, were lucky enough to afford those expensive weekend ant gym memberships and could pick up crackers faster, giving them an advantage. By the unknowable wisdom of the ant spirit, despite the chaos some lucky ant always managed to find the right animal cracker every 10 minutes.

Very rough approximation of the grand ritual.

A sudden ripple of sound drew her attention. An ant stood triumphantly, arm outstretched and clutching a mysterious dog-faced cracker (very match! such puzzle! wow!) that perfectly fit the silhouette. The great ant spirit Nak Antmoto sealed the box with his approval and replaced the puzzle with a new one, resetting the grant ritual. “We have a winner!” the spirit’s loud voice boomed as the proud champion picked up his sealed box and swaggered out of the chamber to meet his destiny. As the legions of disappointed ants milled back to the previous room, grabbing new boxes to participate in the next puzzle, the Ant Queen glided by and wished them better luck next time. “Sit down,” she suggested, “stay humble!”

The Rest is History

In the final chamber, the winning ant triumphantly slotted his box, sealed with the mark of ritual completion, onto the end of the ever-growing CandyChain. Humming in content, the CandyChain blessed the next round of candy boxes, allowing the ritual to start anew. The happy ant knew that as the chain grew and grew, as he passed on and his eldest son donned his collector’s cape, the box he filled with the candygrams he had verified would remain a staple of history, a snapshot standing between the true world of transparency and security and the false world of chaos and shadow.

At a glance, every ant in the kingdom and beyond would see every candygram in existence. Deep underground and with Nak Antmoto’s good graces, there was no more need for risky expeditions or tenuous alliances. Spiders, termites, and scorpions had no power here.

He was saving Candyland one box at a time. The Ant Queen tapped each of his little ant feet approvingly and gave him a new, royal candygram as a reward. He was a hero.

Proof-of-Work: the Boring Version for Adults

The blockchain technology behind Bitcoin is so revolutionary because for the first time in history, we have come as close as we can to a “trustless” digital transaction. For most of our digital history, we have depended on banks, credit unions, and other intermediaries to keep our financial information, decision, and transactions secure with pretty mixed results (e.g. irresponsible banking practices leading to the 2008 financial crisis, Wells Fargo, Sony).

When you send money online through any website or institution, it is stored on its servers. It has access to your information and it’s only as secure as the company cares to make it against the “termites” who want to DDoS their servers or “spiders” who use various social engineering or fraudulent measures to obtain your data. At the geopolitical level, poor economic policies may simply go the way of the “scorpion”, leading to citizens’ wealth disappearing due to hyperinflation or simply government seizure.

However, when you send a Bitcoin, the information about the transaction (candygram) ends up being posted on the blockchain (CandyChain). These transactions, once verified, are transparent to everyone and cannot be rewritten or falsified without incredibly self-defeating effort and expense.

Miners (collector ants) play the central role in transaction verification in a process known as proof-of-work. They compete to publish your transaction along with many others onto a new block (candy box) in the blockchain. Miners working on their own block must use a lot of computer power, electricity, and time (gym membership) to solve the extremely difficult cryptographical puzzle (grand ritual & animal crackers) before anyone else to get their own block published.

Algorithmically the puzzle gets harder as there are more participants, but is statistically modeled such that a solution is found for each new block approximately every 10 minutes. As such, the more computing power you have, the more likely it is that you will be the one to “guess” the right answer to the problem. Check out this article by Sean and this one by ConsenSys for more information about the role of hash functions to secure blocks.

The miner who guesses the solution to the puzzle gets to post his block and collects transaction fees and and some Bitcoin as a reward. As further blocks from other miners get posted and “bury” his block in the chain, the chances of someone going back and modifying that transaction are practically nonexistent as they would have to undo ALL the cryptographical work done over the past blocks to get to it.

Moreover, when the miner posts his block successfully, all other nodes on the blockchain will sync it and work off the new state. This is why blockchain is known to be decentralized; unlike a rogue bank having the freedom to modify what’s in your account at its leisure, only you with your private key can control your Bitcoin balance since it is visible at any time to the entire world. Anyone trying to mess with your transactions would create a divergence from the consensus blockchain and will be quickly rejected.

In essence, the proof-of work system is a defensive measure that makes forgery and fraud difficult but verification easy. From the way the “grand ritual” or hash functions are constructed, it is easy to compare the solution to the question but not so easy to find the solution. In this way, the Bitcoin system holds such credibility because of all the work behind it.

To learn more, consider going straight to the source: the original Bitcoin white paper by the mysterious Satoshi Nakamoto. At only nine pages, it is actually very accessible and can probably be considered one of the most influential documents of this century.

Thanks for reading, and I hope this story helped you to better understand proof-of-work and what happens behind the scenes when we use Bitcoin.

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