NAKAMOTO CONSENSUS: Security, Attacks and Incentives.
The famed Bitcoin white paper presented an unconventional Byzantine Fault tolerant consensus algorithm now known as Nakamoto Consensus. It centers around an Proof-of-work (PoW) Mechanism and the "longest-chain-win" rule.
It is simple and can be described very succinctly; at any time and honest node adopts the longest PoW chain to it’s knowledge and attempts to mine a new block that extends this longest chain; a block is committed when hurried sufficiently deep in the chain.
Nakamoto Consensus guarantees safety and liveness with overwhelming probability. Safety in which honest nodes do not commit different blocks at same height and Liveness where every transactions is eventually committed by all honest nodes. The Liveness property of the consensus is phrased as chain growth and the chain quality in recent literature.
A set of rules and incentives created by Satoshi Nakamoto to aid in governing Bitcoin's trustless consensus Mechanism.
Every decentralized network requires a method to achieve consensus, among a majority of participants in the network about the validity of transactions without the participants necessarily knowing each other.
Nakamoto Consensus is the idea of proof-of-work (PoW). Bitcoin's PoW protocol creates an economic disincentive for spamming or attacking the Bitcoin network by making it expensive to mine Bitcoin. This cost is due to the lottery system by which Bitcoin miners propose new blocks and earn rewards.
The probability of any single miner finding a given nonce that solves a cryptographic puzzle first is equal to the percentage of the total network mining power (Hash Power) that they contribute.
Taking an Example:
A miner who has 10% of the total hash power has a 10% chance of being first to find a nonce.
The reason of being first to find the nonce is important because it gives the miner the chance to propose a new block to be added to the Blockchain.
Nakamoto Consensus places a large emphasis on the longest chain, arguing that it is also valid according to timestamps, as it had the largest amount of computational resources dedicated to it. This introduces trust in an otherwise trustless system, thus allowing the Bitcoin network to function without a centralized authority. The consensus ultimately revolutionized both digital currency and modern cryptography by introducing a BFT solution that is scalable, allowing Bitcoin to succeed as a trustless peer-to-peer transaction system.
Basically, Nakamoto Consensus managed to create a standard of measurement for the Blockchain's validity: amount of computational resources spent on it. While the consensus has seen it's fair share of criticism, largely due to its tendency to allow the chain to fork, it remains one of the most efficient and successful consensus Mechanisms among decentralized networks.
By attaching a scarce resource(Computing power) to the Blockchain, Nakamoto Consensus gives Bitcoin implicit value, security and trust over other currency systems.
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