What is the best analogy to understand how blocks in the Bitcoin blockchain are chained together?

00:01 Hey everyone, here is an advanced video. 00:03 So, if you are not an advanced Bitcoin 00:05 user, you can just skip this one. But I 00:07 heard an analogy recently that I thought 00:09 was uh appropriate and I wanted to walk 00:11 through it for how the blocks in the 00:14 Bitcoin blockchain are are linked 00:16 together and how the difficulty 00:19 adjustment, which adjusts about every 00:21 two weeks, which is actually about every 00:23 2,000 Well, it's exactly 2016 blocks, 00:26 but that happens on average exactly 2 00:28 weeks apart. uh unless the the Bitcoin 00:31 miners are finding blocks a little bit 00:33 too fast or a little bit too slow, then 00:35 it is slightly more than two weeks or 00:36 slightly less than two weeks. But that's 00:38 part of what I want to talk about. Okay. 00:40 So, what is the Bitcoin blockchain? 00:42 Well, the Bitcoin blockchain are blocks 00:44 of transactions that are chained 00:46 together going back to the very first 00:49 block, which is the genesis block, which 00:51 was launched on January 3rd of 2009. 00:55 That is the genesis of the Bitcoin 00:57 blockchain was on January 3 of 2009. 01:00 Okay. So, the very first block was block 01:02 one. Right now, we are more than 01:05 884,000 blocks in the blockchain, which 01:09 means about every 10 minutes for the 01:11 last more than 16 years, the Bitcoin 01:14 blockchain has been adding a new block 01:15 to the chain. So, the way the Bitcoin 01:18 blockchain is set up, effectively, it's 01:21 like a puzzle piece. It's like Satoshi 01:23 Nakamoto put the very first corner 01:26 puzzle piece uh you know on the board 01:29 and we got to build a puzzle in one long 01:32 straight line where every puzzle piece 01:34 is connected to only one more puzzle 01:37 piece and then the on the front of it 01:39 and then on the back of it another 01:40 puzzle piece connects and then that's 01:42 how the chain is chained together. So 01:44 nothing ever connects to the sides of 01:45 the puzzle pieces. It's just a very long 01:48 chain of a single single row 01:53 of Okay, so imagine that Satoshi 01:56 Nakamoto put down the very first puzzle 01:57 piece and it has only one end that you 02:00 can connect anything to. So it's 02:02 basically the anchor puzzle piece of the 02:03 Bitcoin blockchain and you got to figure 02:06 out what the second puzzle piece is and 02:07 all the chains are going to connect 02:09 together. So, it needed to be for a 02:12 bunch of reasons I've explained on other 02:13 videos that Satoshi Nakamoto, the 02:15 inventor of Bitcoin, wanted new puzzle 02:19 piece to be discovered about every 10 02:21 minutes because he wanted to 02:24 make Okay, sorry, my signal is having 02:27 issues here. Um, so anyway, so it's like 02:29 Satoshi invented the blockchain and put 02:32 down the very first puzzle piece, which 02:33 is just a flat end on three sides, 02:35 meaning you can't connect anything on 02:37 three sides. and he put down the very 02:39 first puzzle piece. And then he had to 02:41 figure out how do I make it where 02:42 everybody only finds a new puzzle piece 02:44 every 10 minutes because he wanted there 02:46 to be long enough for all of the 02:48 computers anywhere in the world, 02:50 including on satellites, including on 02:51 the moon, including on everything, to 02:53 synchronize and agree on the absolute uh 02:56 definition of truth. And so he set the 02:59 difficulty adjustment at one. And one 03:02 meant you had to try on the T. So it 03:05 dumps a bunch more puzzle pieces on the 03:06 table so that instead of trying 4.3 03:09 billion, you've got to try maybe 5 03:10 billion pieces in order to find the next 03:12 block. And then you got to try as more 03:14 computers join the network, you got to 03:16 try 10 billion pieces. But and it's not 03:20 that more than one person can't find a 03:21 miss a fitting piece. It's just that on 03:24 average, one piece will fit out of every 03:27 4.3 billion pieces. So that's the way 03:30 the Bitcoin blockchain worked uh right 03:32 out of the gate. And then every two 03:33 weeks, which was every 2016 blocks, 03:36 actually every I should say every 2016 03:38 blocks, it would detect how long it took 03:42 to mine, meaning to add to find those 03:46 2016 puzzle pieces to string in a row, 03:48 and then it would adjust the difficulty. 03:50 So what started as you find a puzzle 03:52 piece every 4.3 03:54 uh billion tries you have to try 4.3 03:57 billion puzzle pieces to add a a new 03:60 piece to the chain became an 04:02 astronomically larger number because 04:05 computers are good at trying puzzle 04:06 pieces. Uh and so as you keep trying and 04:09 trying and trying more pieces more and 04:11 more people joined the Bitcoin network 04:13 trying puzzle pieces and it kept 04:15 adjusting making it harder and harder 04:17 and harder and harder to find a piece. 04:19 So in a second here I'll talk about how 04:21 hard it is to find a piece. But what is 04:24 in a puzzle piece? So a puzzle piece 04:26 which is called a block. First of all it 04:29 has the shape which is the nu the uh the 04:31 the cryptographic hash of the previous 04:34 block. That's how you prove that your 04:37 puzzle piece fits with the the previous 04:39 puzzle piece. So that's why it's called 04:40 a block chain because all of the pieces 04:43 are chained together and every piece 04:47 references it has a cryptographic hash 04:50 which is sort of the shape of the 04:52 previous puzzle piece embedded in it. If 04:54 that was not the case, you would not 04:55 have a way of proving that you had found 04:57 a a piece that fit or that somebody had 04:60 not manipulated the puzzle uh by trying 05:02 to replace earlier pieces. So every 05:04 puzzle piece which is every bitcoin 05:06 block has the shape of the previous 05:08 piece embedded in it. It also has all of 05:11 the transactions from the last 10 05:12 minutes embedded in it. And it also has 05:15 a special uh transaction which gives 05:18 whoever finds the puzzle piece extra 05:20 bitcoin. And it started at 50 bitcoin 05:23 for the first four years. Then it was 25 05:24 for the next four years. Then it was 05:26 12.5 for the next four years. Then it 05:28 was 6.25 for the next four years. And 05:30 now it is 3.125 bitcoin. So, whoever 05:33 finds that puzzle piece about every 10 05:35 minutes, they get 05:37 3.125 Bitcoin. Now, the last piece in 05:40 the puzzle is a random number. And the 05:43 reason it has to be a random number is 05:45 because otherwise every puzzle piece 05:46 would be the same. So, once you tried 05:48 one piece and it didn't fit, there'd be 05:50 nowhere to go because you have to modify 05:52 your puzzle pieces. You know, every 05:53 puzzle piece has to be different. And 05:55 so, everybody's trying all these puzzle 05:57 pieces, each of which has the 05:59 transactions from the previous 10 06:01 minutes. It has the shape of the 06:03 previous puzzle piece. It has the 06:04 special Coinbase transaction which is 06:06 what the company Coinbase is named 06:08 after. It has that the Coinbase 06:10 transaction and it has a random number 06:12 so that all the puzzle pieces that are 06:13 being tried are a little bit different 06:15 from each other. Again, if you didn't 06:17 use a random number and you just use the 06:18 same number over and over, then it'd be 06:20 like trying a puzzle piece that didn't 06:21 work and then trying it again. Well, no 06:22 matter how many times you try the same 06:24 not fitting puzzle piece, it's not going 06:25 to suddenly start working. So you have 06:27 to put a random number in any in every 06:29 puzzle piece to make them all different 06:30 from each other. Okay. So that is what's 06:33 in it. It's it's the hash of the 06:34 previous block which is sort of the 06:36 shape of the previous uh you know puzzle 06:38 piece. It's got the transactions from 06:40 the last 10 minutes. It's got your 06:42 special Coinbase transaction that gives 06:44 Bitcoin to you. And if you try to get 06:46 give yourself more than the protocol 06:48 allows like more than 3.125, everyone 06:50 will reject it. So there's no point in 06:52 mining a Bitcoin block that has more 06:54 than the allowable amount of Bitcoin in 06:56 it for you because the rest of the 06:58 network is set to reject anybody that 06:60 tries to cheat that way. And then it has 07:01 a random number in it. And the random 07:03 numbers can be basically infinite. Okay, 07:06 so let's talk about difficulty again. 07:08 This is where it gets pretty cool. Okay, 07:10 so the difficulty was set to one, which 07:12 is one out of every 4.3 billion pieces 07:15 fits. And that went on for the first 07:18 two, you know, 2016 blocks, which was 07:20 about the first two weeks. And then it 07:22 kept getting as more people were mining 07:23 Bitcoin, more computers were guessing 07:25 puzzle pieces, it got harder and harder 07:27 and harder and harder and harder. Okay, 07:29 so the current uh network difficulty is 07:34 114 trillion. What that means, it is 07:38 114 trillion times harder to find a 07:41 Bitcoin bu puzzle piece today than it 07:44 was at the beginning. 114 trillion times 07:47 harder. So, how many puzzle pieces do 07:50 you have to try on average? Or does all 07:52 the world's computers that are trying to 07:54 mine Bitcoin, how many do they have to 07:56 try in order before somebody gets a 07:59 Bitcoin block? And the answer is about 08:02 600 billion trillion. Now, that means 08:07 every second. So, 10 minutes has 600 08:10 seconds in it. It's 60 seconds in a 08:11 minute times 10 minutes. So that means 08:13 there's about out of 600 billion 08:15 trillion puzzle pieces that have to be 08:17 tried before somebody finds the next 08:20 Bitcoin block. It's called mining a 08:21 block. Mining because it was named after 08:24 gold mining. You know, you have to chip 08:25 away until you find the block. And it 08:27 takes on average right now about 600 08:30 billion trillion tries. So um if you 08:33 break that down, divide it by 60 uh 600 08:35 seconds in a minute, it means every 08:37 second there is about 1 billion trillion 08:41 puzzle pieces tried. So my Bitcoin 08:44 miners at home, I have two of them and 08:46 each of them do about one terraash. One 08:50 terraash means they are trying about a 08:52 trillion puzzle pieces per second. So 08:55 even my Bitcoin miners at home can try 1 08:59 trillion puzzle pieces per second trying 09:02 to find the right puzzle piece. Now the 09:04 problem is there are 100 billion 09:07 trillion puzzle pieces that have to be 09:10 tried before or there are 600 billion 09:13 trillion puzzle pieces that have to be 09:14 tried every 10 minutes before somebody 09:16 mines a block. Which means the 09:18 probability that I will find one of 09:20 those is less than one in a billion. 09:23 Meaning I will mine a Bitcoin block with 09:25 my Bitcoin miners at home. Each of them 09:27 has a chance of mining a block about 09:29 once every 15,000 years. And the reason 09:33 it's 15,000 years is because that is 09:36 about how long it takes to go through uh 09:39 with with me doing a trillion tries a 09:42 second and with the Bitcoin network 09:43 requiring a billion trillion, then my 09:46 chances of finding it are based on the 09:48 fact that it takes me about a billion 09:49 tries to get a Bitcoin block. And it 09:52 takes about 115,000 years. Sorry, 09:56 15,00015 15,000 years to try a billion 09:60 tries. But that assumes that the 10:01 difficulty adjustment doesn't go up. And 10:03 the difficulty adjustment is going up uh 10:05 constantly every 2 weeks. So it means my 10:09 Bitcoin miners at home are purely doing 10:10 it for fun because they will never mine 10:13 a Bitcoin block. It is basically 10:14 statistically impossible that they will 10:16 mine a Bitcoin block. Okay. So why is 10:19 all of this necessary? Why are we using 10:22 onetenth of 1% of the world's 10:24 electricity to do it this way? And the 10:27 answer is because the most important 10:30 thing in Bitcoin is that there's only 10:32 one there's only 21 million Bitcoin and 10:36 that there is only one version of the 10:38 truth. And if you do it any other way, 10:41 you cannot guarantee that there's only 10:43 one version of the truth. So, for 10:46 example, if you said, well, why don't 10:49 everybody with a computer vote on what 10:50 the truth is? The problem is someone 10:52 would spin up a bot farm on AWS or, you 10:56 know, Google Cloud or something like 10:57 that, and they would make a gazillion 10:59 computers each having a vote and they 11:00 would flood the network with votes 11:02 saying that the version of truth 11:04 involved them having more Bitcoin, uh, 11:06 or something like that. Now, 11:07 cryptographically, you can't do that uh 11:09 because you can't claim you have Bitcoin 11:11 that you don't have. But they could try 11:13 to do a transaction and then spread the 11:15 word that they have not actually done 11:16 the transaction. So, they buy something 11:18 and then they try to reverse it by 11:20 spreading misinformation about the 11:22 nature of the transactions on the 11:24 Bitcoin blockchain ledger. So, the only 11:26 way you can get around that or the only 11:29 way you can solve for that is to solve 11:31 what's called the Byzantine General's 11:32 problem, which is what Satoshi Nakamoto 11:34 solved with the Bitcoin blockchain. And 11:36 the way the Byzantine general's problem, 11:38 if you want to Google it to find out 11:40 what it is, uh it's closely linked with 11:43 the genesis, the creation of Bitcoin and 11:45 the difficulty adjustment, which I've 11:47 described uh to some degree in this 11:49 video. Uh but the Byzantine general's 11:51 problem is a problem where you try to 11:53 figure out where there's only one 11:55 version of truth without requiring 11:58 anyone to trust anyone else. So that is 12:01 the big unlock of Bitcoin is there's 12:04 only one version of the truth. There's 12:06 only one version of who owns what 12:08 Bitcoin and there's only one version of 12:10 the fact that there's, you know, that I 12:12 should say that an infinite number of 12:14 people can check to make sure there's 12:15 only 21 million total Bitcoin and that 12:18 nobody has, you know, cheated the system 12:20 somehow. So in order to have only one 12:22 version of the truth, you have to have a 12:24 huge amount of computing power deciding 12:27 what that one version of the truth is. 12:29 And here's the thing. Every time you add 12:33 one of those puzzle pieces to the 12:34 Bitcoin blockchain, you know on average 12:37 that somebody did enough work that they 12:40 would only find a puzzle piece once once 12:43 every 600 billion trillion tries. So 12:47 right now when a block gets added to the 12:48 Bitcoin blockchain, you know that the 12:50 total amount of work that went into 12:53 finding that version of truth was on 12:56 average 600 billion trillion tries of 12:59 that. So if you show up and somebody 13:01 says my version of the truth is better 13:04 than your version of the truth, it's a 13:05 very simple question which is who's got 13:07 the longer blockchain? Because whoever 13:10 has the longer blockchain did more work 13:13 to create it. And the way Bitcoin is set 13:15 up, the absolute version of the truth is 13:17 whatever is the longer chain. And 13:20 because you can't fake the longest chain 13:22 because it has the most proof of work 13:25 embedded in it, it guarantees that the 13:27 Bitcoin blockchain will only ever have 13:29 one version of the truth. So again, you 13:31 can't fake it because there's no way to 13:33 fake I tried a gazillion, you know, 600 13:36 billion trillion puzzle pieces. Um, so 13:39 you know the the there you know I can't 13:42 say well hey my puzzle's longer because 13:44 people are going to say yeah but look 13:45 you said it where the difficulty 13:47 adjustment was easy and then you added 13:49 puzzle pieces and the way the Bitcoin 13:51 blockchain works is the the longest 13:53 chain which is defined as the chain with 13:55 the most proof of work in it is always 13:58 the absolute and only version of truth 14:00 that exists any world in the world and 14:02 that is replicated across more than 14:04 100,000 computers around the world that 14:07 keep a full and complete version of the 14:11 entire Bitcoin blockchain, including me. 14:13 I run uh two Bitcoin nodes at home um in 14:17 addition to two Bitcoin miners, even 14:18 though you can do there's no reason each 14:20 one needs to have one. You could mine an 14:22 unlimited amount of Bitcoin with just 14:23 one node, but I just happen to run two 14:24 nodes. But anyway, so I have two nodes, 14:26 both of which have the entire complete 14:29 Bitcoin blockchain from the Genesis 14:31 block to the present. And the device 14:33 that runs those, which is 14:36 umbrell. It's the first uh five or six 14:39 letters. I guess the first u m r. It's 14:41 the first six letters of the word 14:43 umbrella. 14:44 Umbrell.com. Like umbrella except it's 14:47 missing letters, so it's only the first 14:48 six. umbrell.com is um is a Bitcoin node 14:52 implementation that costs less than 14:53 $500. So if you want to run your entire 14:56 own Bitcoin node with an entire copy of 14:59 the Bitcoin ledger from the very first 15:01 transaction in the past to the current 15:04 so that you are a participant in 15:07 guaranteeing that there is only one 15:08 version of truth. You can do that and it 15:10 costs $450 450. So for less than $450 15:15 you can have an entire copy of the 15:17 entire Bitcoin blockchain on your own 15:19 computer sitting at home and it's pretty 15:21 awesome. So, um, anyway, that is how 15:24 that works. It started as you got to try 15:26 4.3 billion puzzle pieces to mine, you 15:29 know, to find a puzzle piece that fits. 15:31 Now, you have to try 600 billion 15:33 trillion puzzle pieces in order for it 15:35 to fit. And you can trust the Bitcoin 15:37 blockchain because there's only ever one 15:40 version of truth because whichever chain 15:43 has the most proof of work in it, 15:44 meaning you can prove that they had to 15:46 try the most number of puzzle pieces to 15:48 get it is the absolute record of truth 15:50 on the Bitcoin blockchain. And 15:53 nobody before or after Satoshi Nakamoto 15:56 figured out how to create an absolute 15:60 single 16:01 unalterable record of proof without 16:04 having to rely on a central party to 16:06 just tell you what the tr the truth is. 16:08 So you can go to your bank and ask the 16:09 bank how much money you have, but they 16:11 can change the numbers. You can go to 16:13 the Federal Reserve and ask them how 16:14 much money you have and they'll tell 16:16 you, but they can change the numbers. 16:17 They can also change how much money 16:19 there is which makes your money less 16:21 valuable. So nobody other than Satoshi 16:23 Nakamoto has ever come up with a 16:25 mechanism by which you can absolutely 16:28 guarantee there is only one record of 16:29 truth anywhere in the world and that 16:32 everyone agrees on that record of truth. 16:34 And that record of truth is absolutely 16:36 completely unalterable. And that was 16:38 done through the blockchain which is 16:40 effectively now 16:42 884,000 puzzle pieces all chained in a 16:45 row. every one of them perfectly linked 16:47 to the puzzle piece before. The chain is 16:49 unalterable because if you broke the 16:51 chain anywhere, you would have to redo 16:53 that proof of work. Meaning, you'd have 16:54 to refind all of the puzzle pieces past 16:57 the point that you broke it. And it has 16:59 created one absolute irrefutable oracle 17:01 of truth for the world, which is how 17:03 Bitcoin works. Um, but probably the most 17:05 shocking thing is that we went from it 17:07 used to you used to be able to find a 17:09 Bitcoin block one every 4.3 billion 17:11 tries to now you find a Bitcoin block 17:13 every 600 billion trillion tries. That's 17:18 how hard it is to mine a block on the 17:19 Bitcoin blockchain, which is how 17:22 important it is to know that there's 17:23 absolutely positively only one record of 17:25 truth. Because anybody that tries to 17:27 generate any other record of truth would 17:29 have to compete with 600 billion 17:32 trillion tries every 10 minutes, which 17:35 is what the Bitcoin network is currently 17:37 creating. So, uh, hopefully that trivia 17:39 is fun, even though it's pretty 17:41 advanced. And if I can help anyone on 17:42 their Bitcoin journey, let me know. 17:44 Thanks