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Transactions without Witnesses

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The real estate metaphor serves only as an example that it is—theoretically, at least—possible to manipulate information when only a small number of participants and witnesses are involved.

A simpler version of this same manipulation, is if you give someone 100 dollars in cash and he later claims to have never received the money. You have entered into a transaction within a centralized system without a third party to witnesses and corroborate the truth of the transaction. Even if you asked a friend to be present when you paid the other party, you still can’t be 100% sure that said friend is reliable enough to confirm that you gave the other party the 100 dollars. He could forget, or pretend that he had forgotten because he had been bribed by the other party. Humans error and susceptibility to manipulation is a large part of what makes the centralized system vulnerable and ineffective.

There is a huge amount of literature on this subject and many academics worldwide have tackled these connections. Game theory is a science that attempts to understand systems as a way to predict the behavior of people who interact when exposed to a variety incentives. What the game theoreticians want to understand is how much a recipient who owes 100 dollars must pay a friend for him to “forget” and thus no longer be a witness. In theory, there is always a sum that makes it lucrative to manipulate. Maybe not for 100 dollars; but with sums in the millions, it would not be exceptional or rare to discover that someone’s loyalty can be bought for a price.

If the handover of the 100 dollars is observed by 1,000 friends and all 1,000 are potential witnesses, then any judge will believe that the 100 dollars was paid—even if one, 10 or even 200 of the witnesses lose their memory. Thus, the greater the number of witnesses, the lower the risk of interference.

Chapter 3 — How the Bitcoin Blockchain Works

Bitcoin, Blockchain & Co.

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