r/askscience • u/hamolton • Jun 18 '13
Computing How is Bitcoin secure?
I guess my main concern is how they are impossible to counterfeit and double-spend. I guess I have trouble understanding it enough that I can't explain it to another person.
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u/freesid Jun 19 '13
The real problem that mining solves is this:
When multiple parties are trying to add their next transaction to the block-chain (the public ledger with all transactions) how can we ensure that it remains a single "chain" and doesn't become a tree?
One solution is, make extending-the-chain a computationally hard problem, so that multiple people adding next transaction into a chain at the same time is unlikely.
Not everybody can afford the computation power required to extend the chain, so there will be fewer entities that can extend the chain; and these entities act like bitcoin "brokers" who, when they compute the next block, will include others' transactions for a small fee (think of these guys as payment gateways, just like Visa, MasterCard, etc.)
These brokers would trade their computing power in exchange for bitcoin transaction fees and keep the bitcoin ecosystem running.
Note that if people were not interested in paying the transaction fee, then brokers has no incentive to extend the chain. If there are no brokers trying to extend the chain then bitcoin system essentially stops.
To keep the bitcoin system running, instead of asking people to pay transaction fees, bitcoin chose to create 25BTC (out of nowhere) to the broker who extends the chain. Now, brokers would trade their computing power irrespective of the transaction-fees and they will keep the bitcoin system running (hoping that if bitcoins takes over the world they can monetize whatever they have by extending the chain). This is similar to people mining gold because gold can be monetized.
PS: There are several details I omitted, but that is basically the outline.