Shrek: Ogres are like onions.

Donkey: They stink?

Shrek: Yes. No.

Donkey: Oh, they make you cry.

Shrek: No.

Donkey: Oh, you leave em out in the sun, they get all brown, start sproutin’ little white hairs.

Shrek: No. Layers. Onions have layers. Ogres have layers. Onions have layers. You get it? We both have layers.

Donkey: Oh, you both have LAYERS. Oh. You know, not everybody like onions. CAKE! Everybody loves cake! Cakes have layers!

Shrek: I don’t care what everyone likes! Ogres are not like cakes.

Donkey: You know what ELSE everybody likes? Parfaits! Have you ever met a person, you say, “Let’s get some parfait,” they say, “Hell no, I don’t like no parfait.”? Parfaits are delicious!

Shrek: NO! You dense, irritating, miniature beast of burden! Ogres are like onions! End of story! Bye-bye! See ya later.

Donkey: Parfait’s may be the most delicious thing on the whole *** planet!

-Philosophers Mike Myers (Shrek) and Eddie Murphy (Donkey) on the imperfection of analogies

“Blockchain for Dummies”

A ledger might be the most boring conceivable technological innovation. It is nothing more than a list of transactions. A ledger can track anything from sales of chicken and waffles to a list of who owns which houses on your street. Most commonly, they are used by financial institutions like banks.

Let’s take an example of an exchange between Shrek and Donkey. To start, let’s say that Donkey has deposited $2 into the bank and Shrek has deposited $10 so that the bank’s ledger starts with two entries:

Before they go to sleep, Donkey goes to Shrek and lets him know that “In the morning, I’m making waffles!” Shrek likes waffles (especially with a nice fish guts syrup on top) so he logs into his mobile banking app and sends Donkey $2 to help buy the waffle ingredients. The ledger gets updated with a $2 debit for Shrek (that’s money going out of his account) and a $2 credit for Donkey (money coming into his account).

A credit means money being added to your account, a debit means money being taken away.

At any point, Shrek and Donkey’s account balances can be calculated by adding up the credits and debits.

After Shrek sends donkey the money for waffles, it looks like this:
Shrek = $10 credit – $2 debit = $8 account balance
Donkey = $2 credit + $2 credit = $4 account balance

This same system of ledgers could be used to record many kinds of property, from the sale or transfer of a piece of land to stocks or healthcare records. In any case, you can “add up” the whole list of transactions to get a final accounting of who owns what.

This is the basis of how modern societies keep track of pretty much everything. It works fine, as long as whoever is in charge of writing the ledger—sometimes called the trusted third party—is honest and doesn’t make any mistakes.

The “Let’s Be Evil” Button

Many people alive today take this honesty and competency for granted because it has been mostly true for most of their lives. But, consider the many for whom that cannot be taken for granted throughout history and today.

Maybe you’re one of the world’s unbanked people and don’t meet the requirements to have a bank account. Maybe banks are unreliable where you live. Maybe, as happened in Cyprus in 2012, officials decide to seize your savings to bail themselves out.

In some cases, as in Argentina in 2001, officials decide to devalue your money by 75% without allowing you to exchange it for another currency. Or, maybe the money itself is unsound, as has been the case in Venezuela or Zimbabwe in the early 21st century, and your balance from yesterday that could’ve bought a house isn’t worth a cup of coffee today.

Though most people alive today in the developed world haven’t witnessed it, the average life expectancy of a government-issued currency is 27 years.¹

If somebody can just arbitrarily change your balance to zero, that kind of sucks. (Unless you’ve got student loans, in which case it would be sweet).

The key point is that any time a system lets somebody change history with a keystroke, you have no choice but to trust that everyone who can make that keystroke will be both perfectly honest and competent. Alas, humanity doesn’t have the best track record of that and so blockchains are an effort to create a history that is much harder to manipulate.

In Shrek and Donkey’s case, the bank is the trusted third party and, as long as the bank is honest and competent, things go alright.

In today’s world, publicly important ledgers of property from money to data are often held exclusively at GenericCorp LLC, which can (and does) play God with it at the public’s expense.

Imagine, instead, that the ledger is copied in a thousand places within a hundred different jurisdictions. There is no takedown mechanism or other “let’s be evil” button.²
This would dramatically change the trust component of the financial system.

Blockchains: a History That Is Harder to Manipulate

The idea of a digital currency like Bitcoin was around as early as the 1980s. There were companies started in the 1990s and 2000s that tried to create a digital cash system including eCash (which ultimately failed) and Paypal (which pivoted to being a payment processor).³

The key challenge of digital cash is called the double-spending problem. Digital goods can be easily copied which is great for things like email, file sharing, and social media, but a horrible characteristic for money or property.

You own your car because there is an entry in a ledger somewhere that says it’s your car. In the U.S., car titles are usually issued and maintained in a ledger by the Secretary of State in the state you purchased the car in. If I could copy that entry and edit it so that my name replace yours, then I would own your car. Same with your home, your bank balance, and your personal data. You only want one, definite copy of that ledger floating around.

Historically, the only way to solve the double-spending problem was through institutional trust: trusting a third-party institution like a county registrar, bank, or payment processor to not let anyone double-spend.

Shrek and Donkey could appoint Lord Farquaad to keep the ledger. Sadly, like some people in power—from corporate executives to government bureaucrats—Lord Farquaad has a massive inferiority complex. He isn’t that happy about his life, which he compensates for by being a prick and screwing people over at work.

Or even if he were well-meaning, he may not have the best cybersecurity practices. If Lord Farquaad is hacked or if there is a bug in his code, then there will not be an accurate and honest ledger for Donkey or Shrek. Perhaps more tragically, no one will be having any waffles.

How could a blockchain help us keep an accurate ledger without relying on a single point of failure, a trusted third party with the ability to play God?

First, let’s look at how a blockchain works relative to the simple ledger Shrek and Donkey were using above.

A Blockchain Explanation Your Parents Could Understand

There are two main differences between how Shrek’s ledger works and how a blockchain works:

1. Blockchains are tamper-evident. Blockchains contain data showing anyone with a copy of the ledger if someone else is trying to tamper or change it.
2. Blockchains are distributed. Instead of having a single trusted third party control it, there are many copies.

Let’s take these in turn.

Blockchains Are Tamper-Evident

In our analogy, a page in the ledger represents a block in the blockchain. On each page, or block, there is a list of transactions and information associated with them, like how much money is included and what time they were sent.

There is also information about the page itself. Just like a book page has some information about the book—the book title, the chapter title, and a page number—a block includes information like the total number of transactions in the block and the time the block was filled.

Most importantly, each block contains a special link pointing back to the previous page called a hash. A hash is a mathematical function that lets you encrypt data. Bitcoin uses a cryptographic hash function called SHA 256 which converts any amount of text to a 64-character output. All that means is that you can put any string of text or data into a hash function and it will create a 64-digit string of text that looks like gobledy gook, but can be decrypted to be something intelligible.

If I put the phrase I like ice cream into the SHA 256 hashing algorithm⁴, it creates the output:

138F4504A873C01D0864343FAD3027F03CA9BEA2F0109005FA4FC8C7DCC12634

If I put the entirety of War and Peace⁵ (all 587,287 words), it creates the output:

57027F5B3877ABBE43ACB101D59E963BC2CC0E86A6EBCCC34DFD035BBF83B096

Even though the input is 146,821 times longer, you get the same size output. Most importantly for blockchains, if you change just one little thing in the data you are putting in, the output changes dramatically.

If I go into War and Peace and change the author from “Leo Tolstoy” to “Lord Farquaad” but leave all 587,285 others words the same, it produces an output that looks nothing like War and Peace with Tolstoy as the author:

750D174BD900693744FC5186496BDF228F816F042C7CF59ADA1CF808CF3599C1

When a new block is added to the blockchain, all of the data about the transactions in that block are hashed to create a 64-character output. This 64-character output is then included in the next block, and points back to the block from which it was created.

This is why it is called a blockchain. It is a series of blocks with transaction data “chained together” by a hash function. In our ledger book analogy, you can think about a hash function like gluing completed pages together.

If Lord Farquaad went back and changed a transaction that happened 100 blocks ago, the hash of that block would change. This would cause the hash of the following block to change, and so on up to the most recent block.

Let’s say that someone had put a hash of the text of War and Peace into a block and Lord Farquaad went back to edit it so that it looked like he wrote the book. In the blockchain with Tolstoy listed as the author, the hash of that block would be:

57027F5B3877ABBE43ACB101D59E963BC2CC0E86A6EBCCC34DFD035BBF83B096

Using that as the input, the hash of the subsequent block would be

D37A69DE59272B546D4E39039399395973A631665CBBD6A1CF07446B569EA6B4

However, if Lord Farquaad changed it to his own name, the hash of the tampered block would not start with 57027 as above, but

750D174BD900693744FC5186496BDF228F816F042C7CF59ADA1CF808CF3599C1

Using that as the input, the hash of the subsequent block would be

AA292E792B254385EC056C7BF28E8C86FEDBE69AB97E0BBE7A837AAAB0A57887

Each subsequent block would have the hash altered so that anyone with a copy of the most recent block would see that Lord Farquad had changed something.

If you glued the pages of the record book together, it would still be possible to rip open the pages and change one transaction, but it would be obvious (AKA tamper-evident) what had happened.

Admittedly, in the case of a book, a very patient, motivated, and careful individual could rip open the page and reglue it without anyone knowing it. And, theoretically, someone could find a way to change a previous block in such a way as to produce the same 64 character hash so that no one would notice what they had done.

However, it is 450 times more likely that a rogue asteroid crashes on Earth within the next second obliterating civilization as we know it and killing billions of people than someone is able to produce a matching hash using a perfect hash function. So, if you’re worried about this, you may want to reconsider your ability to prioritize.⁶
Someone tampering with ledgers is not cool, but seems quite a bit less worrisome than 450 mass murdering space rocks impacting our planet and turning everyone you have ever loved into a cloud of space dust.

In much the same way, because changing even a single letter dramatically changes the output of the hash function, it’s easy to know if someone has tried to change or tamper with anything in a prior block.⁷

Hashing makes the blockchain tamper-evident, but if there is only one person in control of the ledger, then it doesn’t really matter.

If Lord Farquaad decides that he wants to go back and screw over Shrek by taking all his money away, then Farquaad can just rip up the page and stick a new one in that he wants to use. It will be obvious that he did this to anyone who could inspect the ledger, but how will Shrek get access to the ledger to inspect it?

In order to prevent this, we need to have multiple copies of the blockchain, like Bitcoin, so other people can see if he tries to tamper with it.

Blockchains are Distributed

Instead of a single copy of a record book being maintained by one individual, there are thousands of copies of this record book on different computers around the world.

Because blockchains are tamper-evident, if we have lots of copies distributed around the world, it makes it possible to know if someone tried to go back and change the ledger, either on purpose (because they are dishonest) or accidentally (because they are incompetent).

This also has the nice property of making the system more robust—if one computer fails, there are many backups, and so it’s a lot harder for the whole system to fail.

If Shrek and Donkey also have copies of the ledger, then they will both be able to watch it. If Lord Farquaad tries to go back and change a transaction on a previous page, Shrek and Donkey will see the most recent hash number change.

However, it creates a new problem: How do we decide which copy to trust? If Shrek has his own copy of the ledger, what is to stop him from going back to page 1 and erasing the $2 that he sent to Donkey?

One way we could solve it—while still trying to prevent Lord Farquaad from being a dictator—is to find a pool of, say, eight people and run elections every day for who gets to write to the ledger that day.

This system is an improvement over just Lord Farquaad since a single person can’t decide to screw all of the magical creatures over. Increasing the size of the group in power can make a big difference to the fairness of the system.

Some blockchains, typically called private blockchains or permissioned blockchains, use this system. For example, a consortium of eight banks might each share control over the ledger.⁸

If one tried to cheat, or made a mistake, or otherwise tampered with the system, then the rest of the participants would notice that the hash of the most recent block has changed, just like when Lord Farquaad tried to make it look like he was the author of War and Peace.

The challenge is that, while it’s more difficult to cheat, it’s still not that hard. How hard is it for one banker to call up their buddies and tell them that if they make this one itty, bitty change then everyone can make a lot of money and no one else has to know?

Beyond being more susceptible to coercion, private blockchains also mean the group that is in control can censor transactions going over the network.

To use an internet analogy, private blockchains are kind of like Microsoft—you couldn’t just post a blog post or launch an application on Microsoft’s intranet without someone inside giving you permission. This lack of openness can both be unfair and, perhaps more significantly, stifle innovation.

“How is it unfair?” one may ask. “On what grounds would a private blockchain not allow a transaction other than if it seemed ‘shady?’”

The problem is, “shady” is relative. To give an overly dramatic but illustrative example, if you were a Jew in Germany in the 1930s, you were considered “shady” by the people in power. Ditto if you were an African American in the antebellum South or any other number of historical cases where powerful groups subjected the less powerful to their definitions of right and wrong.

“And how does it stifle innovation?”

Consider how many internet companies would have been started if Microsoft executives had to approve them. (Spoiler: None because Bill Gates thought the internet was stupid, remarking in 1994 “I see little commercial potential for the internet for the next 10 years.” Amazon was started in 1995 and Google in 1998 to name only two.)

If a teenager in Venezuela wants to get paid for a web development gig they did for someone in Paris, that could be prohibited by a Venezuelan dictator because it seemed shady. It would seem that dictators have a habit of finding people who oppose them shady and deserving of censorship.

So how can we have a network that is open, meaning one where anyone can send or receive transactions, but still agree on a single copy of the ledger?

How Blockchains Make Cheap Talk Expensive

Prior to Bitcoin, there was no known way to solve this problem and so we needed a reasonably centralized authority (like Chase bank, the country registrar’s office, or a consortium of banks) to maintain an accurate version of the ledger.

The innovation of Satoshi Nakomoto, the anonymous creator(s) of Bitcoin, was to create a lottery system for deciding who got to add a page to the ledger, which Satoshi called proof of work.

If you don’t want to depend on a specific person or third party to maintain the ledger, you can allow anyone to add a block to the blockchain, but with one big caveat to prevent cheating: In order to add a new block onto the existing chain, you have to solve a really, really hard math problem. Solving this problem is called Bitcoin mining.

The concept behind the math problem used in proof of work is similar to rolling a die. Except this die has about as many sides as there are atoms in the universe. This number is basically so large that no human can conceive of it, but to give a rough estimation: there are 100 billion galaxies in the observable universe. On average, each galaxy has about one trillion stars. A typical star like Earth’s Sun has around 10^57 atoms. In total that’s 10^80 atoms, also known one hundred quinvigintillion, a number which sounds awesome but you’ve never heard because it’s so big there’s basically nothing else to use it for.⁹

Bitcoin miners run a computer program which simulates rolling the die until they get a winning lottery number. Because the die has so many sides, in order to find this winning number, a miner may have to roll this die billions, trillions, or quadrillions of times. In order to simulate this die roll, they use powerful computers which require a lot of electricity to run.

Miners are willing to run this program and pay for all that electricity because the way that the Bitcoin record book works is that every block comes with a special “prize” transaction.¹⁰

About every ten minutes, someone rolls a winning lottery number and is selected as the one to officially turn the page, glue it to the prior page, and start recording transaction on the next page.¹¹
Every roll of the die gives you a chance to win that prize. The more times you roll, the greater your chances of winning, but the more you have to pay in electricity costs.

As of April 2019, there are over 1,800 bitcoins awarded each day, worth more than USD $9 million ($3.3 billion per year). That means the Bitcoin mining industry as a whole can spend up to $9 million per day on electricity and computers and still make a profit.

Much has been said about Bitcoin’s energy consumption and, indeed, town-sized warehouses of computers plugged into hydroelectric dams are being poured into the equivalent of rolling digital dice. There is certainly reason to monitor this, however, a full analysis of Bitcoin’s energy usage is beyond the scope of this article.

But what does this have to do with making a better ledger than the one that Lord Farquaad or the bank consortium was operating anyway?

After a miner wins the lottery, they submit their lottery ticket as well as a copy of the page they completed to everyone else in the network who can choose to accept it as legitimate or not.¹²

If Lord Farquaad won the lottery but tried to do something dishonest or incompetent, like take Shrek’s money, then Shrek and Donkey can reject that page and wait for someone else to roll a winning lottery and submit a page that they consider legitimate.

Remember that each die roll costs real money to pay for, so if Lord Farquaad submits a page to everyone else that isn’t accepted, then he has to start rolling the die from scratch, losing all the money he spent on electricity to roll the dice for that page. That means there is a big incentive for miners to play by the rules because if they don’t, they could lose a lot of money.

In other words, proof of work is effective because, if Lord Farquaad just participates honestly, he will make more money than if he tries to cheat.

Proof of work also solves the problem of which version of the ledger is official. On each page, there is a record of how difficult it was to win the lottery. The record book with the most difficult history of lottery winners (technically the most accumulated proof of work) is considered the true record book. The more blocks with more die rolls spent to make them, the more secure the transaction.

You can think of it as a fly getting trapped in amber. If you see a fly in amber and it’s got a millimeter of amber around it, that could have been done yesterday or a year ago. But if you see the fly is trapped in a huge block of amber, you know it’s been there for a long, long time; it’s been accumulating. So a blockchain is a series of blocks. Each block is a series of computations done by computers all over the world rolling the equivalent of galaxy-sized dice. Each block is like another thin layer of amber, and the chain of blocks represents the depth of that amber. The deeper a piece of data in the blockchain, the harder it is to reverse and the more you can trust it.¹³

How to Know Which Version of the Blockchain is Legit

To illustrate, let’s say that you are setting up your own copy of the Bitcoin ledger. You are sent two different versions of the ledger from two different people. There is no leader so how do you know which one to trust? You add up the difficulty of winning the lottery for each block, the amount of amber or glue.

Bitcoin Blockchain Version A:

• The first block of the blockchain had 10% of the possible die rolls as winning lottery numbers
• The second block was harder to make and had 9% of the possible die rolls as winning lottery numbers
• The third block was still harder and had 8% of the possible die rolls as winning lottery numbers

Bitcoin Blockchain Version B:

• The first block of the blockchain had 10% of the possible die rolls as winning lottery numbers, just like version A
• Just like Blockchain A, The second block was harder to make and had 9% of the possible die rolls as winning lottery numbers
• Unlike Blockchain A, the third block was much easier with 20% of the possible die rolls as winning numbers.

In this case, you would trust Blockchain A because the overall difficulty was harder. Remember that because of the cryptographic math here, the die rolls can’t be faked. That means, in effect, that the more difficult blockchain required more real-world energy and the money it takes to buy that energy.

Because it costs more energy, that means that the cost of lying is much higher. Because miners can make more money by participating honestly, trusting the hardest to solve chain simply means trusting that people like to make a profit.

In its early days, some commentators said that blockchain were “trustless” but that’s not true. You do have to trust in economic incentives: that people like money. For better or worse, trusting that people like money tends to be a safer assumption than that people are honest and competent.

In effect, this means that each die roll is like a drop of glue or amber being added to the page. The more glue or amber we have, the more we can trust that the record book because the more expensive it would be to lie about it.

To sum up: a blockchain is a ledger (a list of transactions) that is tamper-evident (can’t be changed without someone else knowing) and distributed (there are many copies) which creates digital scarcity.

In this example, we mostly looked at sending and receiving a form of money, Bitcoin. But, in principle, at least, the ledger could be recording the transactions of anything.

Why Digital Scarcity Matters

While blockchain technology is often compared to the internet, the property of digital scarcity makes it fundamentally different. Bitcoin’s most interesting property is that it allows for the secure ownership and transfer of property rights without relying on a trusted third party or institution.

When we can’t reliably predict the behavior of others, we don’t know whether to cooperate for the greater good or act selfishly for our own good.

This a fundamental problem of civilization. Should you cooperate with someone else to hunt down a stag, or stick to hunting much smaller rabbit which you could hunt alone? The stag would be more food for both of you if you shared it equally, but how can you trust them not to hit you over the head with a club and steal the stag? To scale coordination, we must find a way to solve these dilemmas and cooperate.

Prior to the Neolithic Revolution, coordination scalability was limited by Dunbar’s number: As long as you lived in a small band where you had strong social ties with everyone, you could trust them not to screw you over because it would get them kicked out of the tribe, the equivalent of a death sentence.¹⁴

Many technologies have allowed us to increase coordination scalability since then, but they ultimately all rely on institutional trust: that some institution will enforce the rules honestly and competently. If you want to send money to someone on the other side of the world, you have to send it through some central intermediary like a bank.

One of the most important rules of these institutions is private property. By having institutions like governments and corporations that enforced well-defined and strongly protected property rights, individuals could use markets to facilitate increased trade and increased specialization and the enormous increases in wellbeing that came from that.¹⁵

A business requires investment to get started, and it only makes sense to invest that money if you can feel confident that you will be able to maintain ownership and reap the benefits.¹⁶

Bitcoin was the first “institution” that made it possible to enforce rules and property rights without putting all the power in a trusted third party that may or may not be honest and competent.

Instead of trusting one or a small group of individuals to secure ownership, ownership is based on computer protocols, economic self-interest, and community expectations. Bitcoin functions as an alternative way of enforcing property rights than the traditional legal system.¹⁷

One scenario where this might have been useful was illustrated by science-fiction author Neal Stephenson In his 1998 book Cryptonomicon. Stephenson imagined a bitcoin-like money built by the grandchild of Holocaust survivors who wanted to create a way for individuals to escape totalitarian regimes without giving up all their wealth.

It was difficult, if not impossible, for German Jews to leave the country without giving up the savings they had worked their entire lives for. What if all they had to do was remember a 12-word password phrase? How might history have been different?

Lest this sound too utopian, it seems unlikely that blockchain technology will affect every market by removing the need for intermediaries and creating an equal footing for all, it is more likely to change the nature of intermediation, property rights and how power is distributed.¹⁸

Summary

• At their most basic level, blockchains are ledgers, like a record book used by accountants.
• For a ledger tracking your property rights, the stuff you own, you only want one copy floating around. Most ledgers today rely on a trusted third party to maintain them and establish the official version. This also means we rely on these record keepers to be universally honest and competent.
• Blockchains are a technology to maintain a single ledger without relying on a single trusted third party.
• Blockchains do this in three ways
• First, by using hash functions to make any changes to the blockchain evident to anyone monitoring it.
• Second, by distributing many copies of the record book for other people to monitor.
• And in the case of public blockchains, they go a step farther by requiring a really expensive dice roll that is impossible to fake, making it more profitable to cooperate honestly.
• This has the effect of creating a network that is both open, but capable of enforcing scarcity
• Bitcoin was the first “institution” that made it possible to enforce rules and property rights without putting all the power in a trusted third party that may or may not be honest and competent.

Last Updated on August 1, 2019 by Taylor Pearson

1. “The Average Life Expectancy For A Fiat Currency Is 27 Years … Every 30 To 40 Years The Reigning Monetary System Fails And Has To Be Retooled → Washingtons Blog.” The Average Life Expectancy For A Fiat Currency Is 27 Years … Every 30 To 40 Years The Reigning Monetary System Fails And Has To Be Retooled → Washingtons Blog, Washington’s Blog, 2 Aug. 2011, georgewashington2.blogspot.com/2011/08/average-life-expectancy-for-fiat.html.
2. “The Average Life Expectancy For A Fiat Currency Is 27 Years … Every 30 To 40 Years The Reigning Monetary System Fails And Has To Be Retooled → Washingtons Blog.” The Average Life Expectancy For A Fiat Currency Is 27 Years … Every 30 To 40 Years The Reigning Monetary System Fails And Has To Be Retooled → Washingtons Blog, Washington’s Blog, 2 Aug. 2011, georgewashington2.blogspot.com/2011/08/average-life-expectancy-for-fiat.html.
3. I will keep this description as non-technical as humanly possible. For the more technically inclined reader, please see the semi-technical appendix or the books Mastering Bitcoin by Andreas Antonopoulos, Programming Bitcoin by Jimmy Song and Bitcoin and Cryptocurrency Technologies by Narayanan et. al.
4. You can do this yourself at http://passwordsgenerator.net/sha256-hash-generator/
5. https://www.gutenberg.org/files/2600/2600-h/2600-h.htm
6. Hristov. “Is It Safe to Ignore the Possibility of SHA Collisions in Practice?” Stack Overflow, stackoverflow.com/questions/4014090/is-it-safe-to-ignore-the-possibility-of-sha-collisions-in-practice.
7. For more on hash functions, please see the semi-technical appendix.
8. This is a long-standing problem in computer science called the Byzantine Generals Problem. To quote from the original paper defining the B.G.P.: “[Imagine] a group of generals of the Byzantine army camped with their troops around an enemy city. Communicating only by messenger, the generals must agree upon a common battle plan. However, one or more of them may be traitors who will try to confuse the others. The problem is to find an algorithm to ensure that the loyal generals will reach agreement.”
9. Helmenstine, Anne Marie. “How Many Atoms Exist in the Universe?” ThoughtCo, ThoughtCo, 2 Jan. 2019, www.thoughtco.com/number-of-atoms-in-the-universe-603795.
10. The prize in bitcoin consists of the “coinbase” reward and transaction fees. As of 2019, 12.5 bitcoins are created every ten minutes. This rate of emission decreases by 50% every four years. So in 2020, the coinbase reward will be 6.25 bitcoins. In 2024, it will be 3.125 bitcoins, etc. Transaction fees are the fees everyone pays to send a transaction. Bitcoin is designed so that as the coinbase reward goes down, transaction fees should go up (because more people are using the network) so there is always a big prize for rolling the dice.
11. Why every ten minutes on average? The Bitcoin protocol is constructed so that the number of winning numbers on the die adjusts every two weeks to be ten minutes on average. If more dier are rolled, that means that someone will find a winning lottery ticket faster and so the amount of winning numbers is reduced to make the average block time ten minutes.
12. More technically, the page is submitted to everyone running a Bitcoin full node, a version of the Bitcoin client software.
13. Ferriss, Tim. “The Tim Ferriss Show Transcripts: Nick Szabo (#244).” The Blog of Author Tim Ferriss, 23 Feb. 2019, tim.blog/2018/06/01/the-tim-ferriss-show-transcripts-nick-szabo/.
14. More precisely, this allows you turn a one-time-game into a repeated (or “iterated”) game. If you and your potential hunting partner meet again tomorrow, you are more likely to behave, as each of you has to worry about the other’s retaliation. But such repeated social interactions — or experience — are only possible with a limited group of people at the same time, as proposed by the anthropologist Robin Dunbar. This phenomenon was elaborated and explored in detail by Robert Axelrod in his book The Evolution of Cooperation. Source: “Independent Property Rights.” Uncommon Core, 4 Mar. 2019, uncommoncore.co/bitcoin-and-the-promise-of-independent-property-rights/.
15. See Rafael La, Lopez-de-Silane, et al. “Legal Determinants of External Finance.” NBER, 1 Jan. 1997, www.nber.org/papers/w5879.
    and Jr., Gerald P. O’Driscoll, and W. Lee Hoskins. “Property Rights: The Key to Economic Development.” Cato Institute, 7 Aug. 2003, www.cato.org/publications/policy-analysis/property-rights-key-economic-development.
16. C., Douglass. “Institutions.” Journal of Economic Perspectives, www.aeaweb.org/articles?id=10.1257/jep.5.1.97.
17. Chason, Eric D. “How Bitcoin Functions as Property Law.” ERepository @ Seton Hall, scholarship.shu.edu/shlr/vol49/iss1/3/.
18. Gans, and Joshua S. “Some Simple Economics of the Blockchain.” SSRN, 27 Nov. 2016, www.ssrn.com/abstract=2874598.