Blockchain 101 | Part 3: What Makes Bitcoin Secure? Hint: Merkle 🌳
Distributed ledgers have three fundamental characteristics that make them valuable: transparency of the network, the privacy of the user, and immutability. The latter is — in terms of security and usefulness — the most crucial one. But what is it that really makes distributed ledgers secure? Let’s take a closer look.
Cryptocurrencies — such as Bitcoin, Ethereum, Stellar, Monero, etc. — all use distributed ledgers for storing their transaction history of all users in the network. If however, someone would be able to delete or manipulate the past transactions, that would render the network itself inefficient and useless for its participants.
So what makes distributed ledgers secure and immutable?
Well, it’s something called a Merkle Tree (patented by Ralph Merkle in 1979). Here’s an illustration of how it is conceived:
First of all, let’s briefly explain how transactions are broadcast to the network. Imagine Peter sending Holly one Bitcoin for her birthday (quite a birthday gift, btw). The new transaction is sent to the miners and they add it to their current block. The miners do a lot of computational work (proof of work — POW), so that one of them completes the transaction first. The transaction is then added to a new mined block and becomes visible on the network.
Now let’s imagine that someone named Sauron (LOTR fan here) would like to tamper with that transaction. Because all transactions in the distributed ledger are constructed based on the Merkle Tree concept, once a single transaction is changed, all hashes along that branch would have to be changed as well. Simply put, for Sauron to succeed in manipulating with that single transaction, he would first need to change all previous transactions with the same hash in that block. That’s a lot of work, but let’s say he accomplishes it — what really makes the network secure here, is the fact that he would also need to change any new transaction that is added to the block after that single transaction. And there are millions of new transactions added to the network each hour. Thus Sauron, I say: “You Shall Not Hack!”
Still, this isn’t to say that the blockchain is entirely without problems. Have you heard of the double spending and the 51% attack? If not, follow me, and you can read all about it in my next blog.
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