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Figure 1.2: Double-spending using a central authority 1.2 The Blockchain So, the main problem any transactional system applied to finance must address is “how to order transactions when there is no central authority”. Furthermore, there can be no doubts as to whether the sequence of past transactions is valid. For a monetary system to succeed, there can be no way any parties can modify previous transactions. In other words, a “vetting process” for past transactions must also be in place. This is precisely what the blockchain system in Bitcoin was designed to address. If you are interested in reading about systems that must reach consensus and the prob- lems they face, the paper for The Byzantine Generals Problem10 is a good start. Although at this point the concept of what a blockchain is is still murky, before getting into details about it, let’s go over the problems the blockchain attempts to address. 10 http://lamport.azurewebsites.net/pubs/byz.pdf 7PDF Image | Intro to Ethereum and Smart Contracts
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