The Byzantine General's Problem, Bitcoin, Colored Coins, and Adam Back. Connections and Contributions

Essay, 2017

12 Pages, Grade: 5,7/6.0



Table of Contents
The Byzantine General's Problem and its relation to bitcoin ... 3
The Byzantine General's Problem... 3
Example: ... 3
Relation to Bitcoin... 3
What are colored coins?... 5
What are colored coins? ... 5
Examples ... 5
Summary of advantages and disadvantages ... 6
Explanation of Adam Back's contribution to bitcoin, discussion of his creation of proof-of-work
coding functions and hash-cash... 9
Adam Back's contribution to bitcoin, proof-of-work and hash-cash ... 9

The Byzantine General's Problem
In this problem, an army is surrounding an enemy city with various separated camps, which have to
communicate with each other in order to agree on an attack strategy. There are unknown traitors
among this army who can corrupt the message exchange and thwart consensus. The generals of the
separated camps have to agree on a strategy. However, there are loyal troops/generals and disloyal
traitors who can corrupt the message. The problem they are facing is how they can find out which
message is true. If they do not have a solution they also do not come to a consensus and the traitor
wins the battle (Estevao, 2014).
For example, imagine there is a castle with 300 soldiers inside that are defending their king, and the
castle is surrounded by five armies of 100 men each. Every army has its own camp in the surrounding
hills and its own general. So, there are 500 men against 300 men and obviously, the larger army is
more likely to win the battle. If they do not attack at the same time, they will lose the battle. So, how
do the factions ensure a coordinated attack to capture the castle. Nowadays, a conference call would
solve this problem but in the Byzantine Age the message to attack at 9pm could have only been deliv-
ered via horseback to each general. However, any general could be a traitor and in league with the
General 1 decides to attack at 9pm. So he sends his rider out with this message to General 2 who reads
the message and signs it afterwards. This message should now be shared with the other Generals.
However, General 3 is a traitor and wants the attack to fail. That is why he replaces the message with a
new one that says attack at 8pm. The rider continues on his way and all the other Generals receive the
computed 8pm attack message.
So, the problem now is that two generals (4 and 5) attack the castle with 200 men the castle at 8pm
and assume that the others will join them. Due to the treacherous General 3, 300 defenders of the cas-
tle and the 100 disloyal men of General 3 outnumber them. Moreover, the 200 men of General 1 and 2,
who join an hour later, have to fight now against 400 men if they join an hour later (Campbell, 2015).
Relation to Bitcoin
If we go back to the example of the first section we can now better understand how the story would
look like after bitcoin and the block chain were invented.

For the generals, there would be two more rules. First of all, they have to spend 10 minutes preparing
any new message for it to be valid and they have to include the history of every previous message in
every new message. This leads to the fact that General 3, who is the traitor, has two possibilities. He
can cheat and change the message to 8pm but then he would have to spend 10 minutes to write his
message and extra 20 minutes to forge the messages of General 1 and 2 and above all he has to do the
30 minutes of work within the next 10 minutes, because otherwise the others would know that he is
the traitor. Of course, he can also admit defeat and write the 9pm attack message (Campbell, 2015).
Concerning bitcoin, it can be said that the node comes to an agreement every ten minutes about which
transactions are considered as valid and adds these to the record automatically. And this is known as a
proof-of-work (=time-consuming work, but easy to check). Thanks to this technological invention a
distributed network of individuals can reach an agreement about every single transaction taking place,
because all relevant details are recorded and the mathematically records makes them impossible to
forge (Alyson, 2015) .
To put it in a nutshell, it is the potential of bitcoin's underlying innovation, namely the block chain,
which solves the Byzantine Generals problem. The block chain is the decentralized and distributed
public ledger, which is used and shared by every user to record every single transaction. Thus, the
agreement can be made via a list of transactions without needing a centralized party to keep track over
everything. It is this decentralized aspect of the ledger which is the solution to the Byzantine Generals'
problem (Winters, 2014).

What are colored coins?
Colored coins started in 2013 as a method to push meta-data to the Bitcoin blockchain. In
other words, they are the smallest measurable fraction of a bitcoin called a "satoshi" which
have been "colored" in order to represent another real world asset (Cordell, 2015).
Today trading shares, bonds or commodities is very difficult and expensive because many
people are restricted to a small number of heavily regulated exchanges (e. g. no trading be-
yond a certain point, access only for banks/brokers and advisors, high fees). Colored coins
make trading as user-friendly and efficient as a bitcoin payment. Coloring a bitcoin means
turning it into a token that represents anything a person wants to trade. Just like the HTTP
protocol turned the internet into a user-friendly colorful environment. The colored coin proto-
col adds a new layer to bitcoin that makes it much more useful. Now instead of just sending
cash through the bitcoin network it can be used to trade anything. Even own bonds or stocks
can be issued. Thus, colored coins make the financial world accessable to everyone
(Coinprism, 2016).
digital assets on top of the bitcoin blockchain can be used to prove ownership (e.
g. a digital key to a house or a car) or to store information (e. g. documents, certifi-
cates, etc.). The resulting advantage by doing so, namely using the blockchain as the
backbone for such an asset manipulation, is that one can rely on the blockchain's
transparency, immutability, ease of transfer and non-counterfeitability to transfer and
trade such digital tokens with unprecedented security and ease (Cusick, 2014).
A very common use of those coins are companies that wish to host an IPO. An IPO in
that way can be handled within minutes and practically for free via Coinprism. Shares
will simply be exchanged like bitcoins through the blockchain. A company can even
issue their own currency by using this bitcoin-infrastructure of colored coins. Another
use of colored coins is to create smart properties. A colored coin can represent a deed
for a house too. That is to say, the owner of the coin is then the legal owner of the
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The Byzantine General's Problem, Bitcoin, Colored Coins, and Adam Back. Connections and Contributions
University of Liechtenstein, früher Hochschule Liechtenstein
Is Bitcion the Future of Money?
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Bitcoin, Hash-cash, Byzantine General's Problem
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Anonymous, 2017, The Byzantine General's Problem, Bitcoin, Colored Coins, and Adam Back. Connections and Contributions, Munich, GRIN Verlag,


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