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does not solve the problem for cryptocurrencies: nodes are cheap to add. Therefore, a different solution is necessary. 1.2.2.1 Physics to the Rescue Whatever system is used to ensure some transactions are preferred over others, no node should be able to choose which of these are with 100% certainty. And there is only one way one can be sure this is the case: if it is a physical impossibility for the node to be able to do this. Nodes are cheap to add, so no matter how many nodes a malicious user controls, it should still be hard for him or her to use this to his or her advantage. The answer is CPU power. What if ordering transactions required a certain amount of work, verifiable work, in such a way that it would be hard to perform initially, but cheap to verify. In a sense, cryptography works under the same principles: certain related operations are computationally infeasible to perform while others are cheap. Encrypting data is cheap next to brute-forcing the encryption key. Deriving the public-key from the private-key is cheap, while it is infeasible to do it the other way around. Hashing data is cheap, while finding a hash with a specific set of requirements (by modifying the input data) is not. And that is the main operation Bitcoin and other cryptocurrencies rely on to make sure no node can get ahead of others, on average. Let’s see how this works. First, let’s define what a block is. A block is simply a group of transactions. Inside the block, these transactions are set in a specific order and fulfill the basic requirements of any transaction. In particular, an invalid transaction (such as one taking funds from an account with no funds) cannot be part of a block. In addition to the transactions, a block carries something called proof- of-work. The proof-of-work is data the allows any node to verify that the one who created this block performed a considerable amount of computational work. In other words, no node can create a valid block without performing an indefinite but considerable amount of work. We will see how this works later, but for now know that creating any block requires a certain amount of computing power and that any other node can check that that power has been spent by whomever created the block. Now let’s go back to our previous example of a malicious node, A, double-spending 50 coins by trying to create to two separate transactions at the same time, one sending money to B and the other to C. After A broadcasts both transactions to the network, every node working on creating blocks (which may include A) pick a number of transactions and order them in whichever way they prefer. These nodes will note that two incompatible transactions are part of the same block and will discard one. They are free to pick which one to discard. After placing these transactions in the order they chose, each node starts solving the puzzle of finding a hash for the block that fits the conditions set by the protocol. One simple condition could be “find a hash for this block with three leading zeroes”. To iterate over possible solutions for this problem, the block contains a special variable field known as the “nonce”. Each node must iterate as many times as necessary until they find the nonce that creates a block with a hash that fits the conditions set by the protocol (three leading zeroes). Since each change in the nonce basically results in a random output for a cryptographically secure hash function, finding the nonce is a game of chance and can only be sped up by increasing computation power. Even then, a less powerful node might find the right nonce before a more powerful node, due to the randomness of the problem. 14PDF Image | Intro to Ethereum and Smart Contracts
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