In the previous article , “What is Blockchain?” , we explained that Bitcoin transaction data is stored in a chain of data from when Bitcoin was created to the present.
The chain of new transactions is then added to the blockchain, which contains all previous transactions. When a new block is added, the latest data is sent to the many computers that store all Bitcoin transaction data on the Internet.
New blocks are added to the blockchain stored on each computer, and transaction information is updated.
However, what would happen if a malicious hacker were able to arbitrarily add transaction information that was convenient for them to a previous block as new transaction information?
For example, a hacker may add to a block that contains transaction information such as "Immediately after transferring Bitcoin from Wallet A, which contains Bitcoin, to Wallet B (before the transfer to Wallet B is confirmed), the same Bitcoin is also transferred to Wallet C."
Unlike cash such as banknotes and coins, digital currency is easily copied, so it is easy to copy the same currency data and spend it twice. The technical term for this type of fraud is "double spending."
How do we prevent this kind of malicious, illegal block addition?
First of all, how can anyone be sure that the newly added blocks were not generated by a malicious hacker?
It is not that difficult to confirm whether a particular transaction is a "legitimate" transaction and not generated by a malicious hacker. When a transaction such as "Tansfer Bitcoin from Wallet A to Wallet B" is initiated, the information is sent to computers around the world that store Bitcoin transaction data. By checking the computers that store Bitcoin transaction data scattered around the world, the existence of the transaction itself can be immediately confirmed.
But what would happen if a malicious hacker prepared many computers storing Bitcoin transaction data, and sent fraudulent transaction data saying "Transfer Bitcoin from Wallet A to Wallet C" before the legitimate transaction, "Transfer Bitcoin from Wallet A to Wallet B " was confirmed?
If malicous hackers were to prepare a large number of computers that store Bitcoin transactions in this way, one group of the computers storing Bitcoin transactions in the world would have
the "legitimate" transaction data: "Transfer Bitcoin from Wallet A to Wallet B" and;
the other group of computers that stores
the "fraudulent" transaction data: "Transfer Bitcoin from Wallet A to Wallet C"
This means that there will be two groups of computers storing the legitimate transaction data and the fraudulent transaction data.
Even in such a situation, the blockchain has a mechanism to reject fraudulent transaction data such as "Transfer Bitcoin from Wallet A to Wallet C" as "fraudulent" and confirm the "legitimate" transaction of "Transfer Bitcoin from Wallet A to Wallet B." I will explain this mechanism now.
This system is based on the following two rules:
(1) Complex mathematical problems must be solved to recognize a Bitcoin transaction as “legitimate.”
In Bitcoin, the root of how a transaction is verified as being "legitimate" is the solving of a complex mathematical problem. Only after solving the complex mathematical problem can the transaction be recognized as legitimate.
In the previous example, in order to confirm that the legitimate transaction data, such as "Transfer Bitcoin from Wallet A to Wallet B," is a "legitimate" transaction, a computer must solve a complex mathematical problem. To solve this complex mathematical problem quickly, a computer that can perform high-speed calculations is required. This computer is the Bitcoin miner.
Similarly, in order for a hacker to have fraudulent transaction data such as "Transfer Bitcoin from Wallet A to Wallet C" recognized as a "legitimate" transaction, they would also need to prepare a computer (a mininer) and solve complex mathematical problems.
Even in this situation, most of the miners in the world, other than those owned by hackers, are not used to approve fraudulent transaction data such as "Transfer Bitcoin from Wallet A to Wallet C," but are used to calculate the legitimate transaction data, "Transfer Bitcoin from Wallet A to Wallet B." Why is that?
This is because most miners in the world, other than those owned by hackers, have no incentive to approve hackers ' fraudulent transaction data. This is related to the reward that is given in exchange for operating miners that use a large amount of electricity.
(2) A computer (miner, or group of computers/miners) that participates in the computational process to confirm whether a Bitcoin transaction is legitimate and that is the first to solve the mathematical problem is rewarded with Bitcoin as compensation.
The rule is that the first computer that solves the complex mathematical problem to verify that a Bitcoin transaction is legitimate will be given Bitcoin as a reward. Miners around the world are operated in order to receive this Bitcoin reward.
(This reward comes in two types: 1) newly issued Bitcoin (as of October 2024, 3.125 Bitcoin is issued per block), and 2) Bitcoin that is deducted from the Bitcoin sent as a sort of remittance fee when sending Bitcoin.)
These two mechanics;
(1) Complex mathematical problems must be solved to recognize a Bitcoin transaction as “legitimate.”
(2) A computer (miner, or group of computers/miners) that participates in the computational process to confirm whether a Bitcoin transaction is legitimate and that is the first to solve the mathematical problem is rewarded with Bitcoin as compensation.
As a result, miners in the world, other than those owned by hackers , will have no incentive to verify the malicious hacker' fraudulent transaction data to be "legitimate."
This is because if someone other than the malicious hacker were to use their own miner to approve the hacker 's fraudulent transaction data, the value of the Bitcoin they receive as a reward would be lost, so they would never be used in the calculation work to approve the fraudulent transactions, and they would have a strong incentive to use it in the calculation work for the ``legitimate'' transaction data.
Conversely, in order for a malicious hacker to have the fraudulent transaction data he created recognized as "legitimate," he would need to prepare miners with a large computing power. The malicious hacker would also need to consume a large amount of electricity, and input a large amount of computing power to have fraudulent transactions recognized as "legitimate."
However, there is no incentive to do so. If it were possible and the malicoius hacker received Bitcoin through fraudlent transactions, the value of Bitcoin would inevitably plummet, as it would mean that "fraudulent transactions have occurred." Furthermore, the value of the Bitcoin that is given as a reward would also plummet and become worthless.
As a result, the majority of miners in the world have a strong incentive to only approve "legitimate" transactions, minimizing the chances that a malicious hacker's transaction will be recognized as "legitimate."
To reiterate, in order to recognize a new Bitcoin transaction as a "legitimate" transaction, a computer solves a complex mathematical problem, and if you are the first computer to solve the problem, you will be rewarded with Bitcoin. This is Bitcoin "mining." The value of Bitcoin is maintained because the miners eliminate fraudulent Bitcoin transactions, and the people who operate the miners are rewarded with Bitcoins that have maintained their value.
If malicious hackers were to make fraudulent transaction data be recognized as "legitimate" transactions, they would need to prepare miners with huge computing power.
Huge electricity costs would also be required, but even if they went to such lengths to make fraudulent transactions be recognized as "legitimate" transactions, the price of Bitcoin would collapse... No one would want to make such a wasteful investment.
The computing power of the miniers (computers) that participate in Bitcoin mining has now reached astronomical figures. The use of large amounts of electricity to operate Bitcoin miners is what prevents malicous hackers from conducting fraudulent Bitcoin transactions and increases the security of Bitcoin.
Receiving Bitcoin as a reward for mining Bitcoin also means "protecting the Bitcoin blockchain."