Blockchain Revolution

Buying Art Through the Bitcoin Blockchain: How It Works
To purchase the piece, Don opened his bitcoin wallet app. He used it to create a
message that specified the amount of bitcoin representing the purchase price of the
piece, designated Artlery’s public key as the recipient of that bitcoin, and used his
private key to “sign” or authenticate the message. Don double-checked all the fields
because, unlike traditional payment methods, there was no reversing this bitcoin
transaction. Then he broadcast the message not to his Canadian bank but to the entire
network of computers running the full bitcoin blockchain.
Some people refer to these computers as nodes, where some nodes are donating
their processing power to solve the math problem associated with creating a block. As
we’ve explained, the bitcoin community refers to them as miners and to their
problem-solving work as mining, as in gold mining. It’s an awkward analogy because
it conjures images of experts whose talent might confer some competitive advantage
over noobs (newbies). It doesn’t. Each miner is running the software like a utility
function in the background, and the software is doing all the computations. Serious
miners configure their machines to optimize their processing power, minimize their
energy consumption, and leverage high-speed network connectivity. Beyond that,
there’s really no human aptitude necessary and no human interference tolerated.
Not all nodes are mining. In fact, the vast majority of nodes on the bitcoin
network are simply performing bitcoin rule verification of received data before
routing the data to peer connections. The network verified the two bits of data—that
Don controlled the amount of bitcoin specified and authorized the transaction—and
recognized Don’s message as a transaction. The miners then race to convert unordered
and unrecorded transactions into transactions ordered and recorded in a block of data.
Each block had to include the digest or hash of the previous block of transactions, as
well as a random number known as a nonce. To win the race, a computer must create
a hash of the block; this hash must have a certain, but arbitrary, number of zeros at the
beginning. It’s unpredictable which nonce will produce a hash with the correct
number of zeros, and so the computers have to try different nonces until they stumble
upon the right value. It’s really like winning the lottery because there’s no skill

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involved. However, a human being can increase her chance of winning the lottery by
buying a state-of-the-art computer processor that specializes in solving bitcoin’s math
problems; buying more tickets, that is, running multiple high-powered nodes; or, as
human beings often do, pooling her node with other nodes—like colleagues at the
office—and agreeing to split the pot if one of their nodes wins. So winning is a matter
of luck, processing power, and the size of one’s mining pool.
Hash rate is a measure of the total processing power of the bitcoin network. The
higher the total aggregate hash rate of the entire network, the more difficult it is to
find the right nonce. When a miner finds a hash with the correct number of zeros, it
shares its proof of work with all other miners on the network. This is the other big
scientific breakthrough in distributed computing: using proof of work to achieve
network consensus. It’s known as the Byzantine Generals’ Problem. The other miners
signal their acceptance of the block by focusing on assembling the next block, which
has to include the hash of the newly made block. Just as Don’s public and private keys
are unique to him, the hash of each block is unique: it works like a cryptographic
fingerprint that makes all the transactions in the block verifiable. No two block
fingerprints are the same. The winning miner receives a set quantity of new bitcoins
as a reward—the software itself mints and allocates the new coins—and the hashed
block is appended to the chain.
So, within ten minutes of Don’s broadcasting his message, he and Artlery
received a confirmation that Don’s bitcoin transaction created what is referred to as
“unspent transaction output,” meaning that Artlery can spend it by doing what Don
just did—broadcasting a message that specifies the amount to send and the address of
the recipient, and authorizing the transaction with Artlery’s public key. If the artist
and the patrons knew both Don’s and Artlery’s public keys, then they could see that
the deal between them went through and could see the amount of the transaction.
That’s why we call it a public ledger—all transactions are transparent—and
pseudonymous, in that we can see the parties’ addresses, though we can’t see the
names of the persons behind them. Every subsequent block served as further
confirmation of their transaction.