Blockchain Basics & Consensus

Byzantine Generals Problem

The Problem: Two generals are on the opposite side of a city. They have to launch their attack at the same time. Otherwise they lose. There is no other way of communication but to send a messenger. However, the messenger could be caught by the enemy and replaced by a fake messenger. So how can the generals be sure the information they received from the messenger is correct?

Application in blockchain: the generals represent the nodes in a distributed system. How does the system verify the information sent by each node is accurate?
A more specific application in cryptocurrency - the double spending problem: how does the recipient node verify that the money it received has not already been spent elsewhere?

Solutions to the Byzantine Generals Problem

Proof of Work (PoW)

PoW has the following characteristics to make it Byzantine fault tolerant

The work is difficult. In bitcoin, mining requires a significant amount of computing power to solve cryptographical puzzles.
Tempering is difficult. The attacker has to take over 51% of the system to affect changes.
Verification is easy. Thus consensus can be reached quickly.

In bitcoin, the work is to find the nounce that results in a hash with a targeted number of leading zeros. The current target is 19 zeroes. The genesis block mined on January 3, 2009 has 10 leading zeroes, even though Satoshi required only 8 leading zeroes.

Economic Incentive System

BTC was created through Coinbase Transaction in each block
Originally each block rewards 50 BTC. The rewards halve every 210,000 blocks. Currently 12.5 BTC are created each block.
Current inflation rate: current # of BTC in circulation / # of BTC in circulation a year ago - 1 = 18.958/18.629-1 = 1.77% source: https://www.blockchain.com/charts/total-bitcoins
The maximum number of bitcoin is 21 million, expected to be reached in 2140

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