Part 2 of 4 — why nobody can rewrite the past, and why nobody wants to.
The shared notebook is brilliant, until somebody picks up an eraser.
That is where we left off: a public ledger, copied across thousands of computers, readable by anybody who fancies a look. Wonderful feature. Rather obvious problem. If everyone can see it, can anyone edit it?
The short answer is no. The long answer is far more interesting; it is not the answer most people expect.
Digital fingerprints
A hash function is a mathematical blender.
Feed it anything at all — a word, a number, the complete works of Dickens — and it returns a string of characters of fixed length. The same input always produces the same output, every time, forever. Change one letter and the output transforms utterly into something bearing no resemblance whatsoever to what came before.
Think of a wax seal on a letter that shatters the instant anybody touches the contents. Anyone can check whether the seal matches immediately, without needing to read the letter at all.
The word ‘hello‘ produces a fingerprint entirely unlike ‘Hello ‘. One capital letter. A completely different result. Alter a single penny in a transaction, and the whole block’s fingerprint changes beyond recognition. Cryptographers call this the avalanche effect, and it is the spine of the entire arrangement.
The chain
Now the clever bit, and it is clever in the way a really good lock is clever.
Each block does not merely contain its own transactions. It also contains the fingerprint of the block before it.
So alter a transaction from two years ago, and you change that block’s fingerprint — which breaks its link to the block after it, which breaks the link to the one after that, cascading forwards through every block ever since, all the way to this morning. To get away with it, you would have to recompute every subsequent block and outpace the entire honest network as it merrily builds new ones on top.
At Bitcoin’s scale, that is not difficult. But I want to be precise with you here, because the enthusiasts overstate it: it is not impossible, either. It is ruinously, absurdly expensive. Smaller networks with less computing power behind them have genuinely been attacked and rewritten in exactly this way. The chain is not protected by mathematics alone. It is protected by cost.
Which brings me to the part nobody tells you.
Who actually writes to the ledger
The past is guarded. But who decides what goes in next?
Two approaches dominate, and they could hardly be more different in temperament.
Proof of Work, which Bitcoin uses, sets computers racing to solve a brute-force puzzle — billions upon billions of guesses until somebody stumbles on the answer. The winner adds the next block and is paid in newly created coins, plus the fees. The catch is that this consumes staggering quantities of real electricity, and that energy is not a regrettable side effect. It is the security. To attack the network, you must outcompute the entire global mining industry simultaneously and keep doing so. Good luck with that.
Whether the electricity is a scandalous waste or the honest price of a monetary system that answers to nobody is a real argument with serious people on both sides — miners point to stranded energy and renewables, critics point at the meter. I shan’t settle it for you here.
Proof of Stake, which Ethereum adopted in 2022, dispenses with the puzzle entirely. Instead, participants lock up their own coins as collateral. Behave dishonestly, and the network destroys a portion of that stake. Behave properly, and you earn rewards. It uses well over ninety-nine per cent less electricity, which sounds like an unambiguous triumph — until you notice that those holding more coins wield more influence over what gets written.
Every solution meets your new problem.
The actual invention
Here is the thing I most want you to understand, because it took me an embarrassingly long time to see it, and once seen, it cannot be unseen.
Hash functions existed before Bitcoin. Digital signatures existed. Distributed networks existed. None of that was new. Satoshi’s genuine innovation was not cryptographic at all.
It was economic.
In 1950, a young mathematician, John Nash, described what happens in a system where every participant, acting entirely in their own self-interest, arrives at a strategy from which no one can profitably deviate. Everyone is doing the best they can, given what everyone else is doing. This is the Nash equilibrium, and it is the reason the shared notebook stays honest.
Because ask yourself: why doesn’t a miner cheat? Not because they are good people. Not because a rule forbids it. Because a miner who spends millions on machines to attack the network would be destroying the value of the very coins they are paid in — burning down the house they are standing in. Honesty is not enforced. Honesty is boringly the most profitable available move.
That is the whole trick. Bitcoin’s security does not rest on trusting anybody’s virtue. It rests on the near-certainty that self-interested people will keep the option that makes them richer.
Charlie Munger put it rather better than I can: “Show me the incentive and I will show you the outcome.”
Why anyone bothers
Which answers the question most explainers quietly skip past. These are strangers. Nobody has obliged them to run any of this. Why on earth do they?
They are paid in the network’s own currency. Miners earn bitcoin. Validators earn ether. And the currency requires a secure network to be worth anything, while the network remains secure precisely because the currency is worth something.
A loop that feeds itself, which is why you cannot separate the economics of crypto from its technology. They are the same object described twice. Anyone who tells you otherwise is selling something.
And that, incidentally, is the single most useful habit I have carried out of finance and into everything else. Before I believe anything, I ask who gets paid if I believe it. I learned an expensive lesson some years ago, taking advice from a charming man whose income depended entirely on my saying yes. He was not lying. He could not see past his own incentive, and I hadn’t thought to look for it. Knowing exactly what you own begins with knowing who profits from your understanding of it.
Part 3
That is how the ledger stays honest. But notice how narrow it all is. Everything we have described records exactly one kind of event: Alice sent Bob some coins.
What if the ledger could follow instructions instead? Run code. Execute an agreement. Transfer ownership of a thing when a condition is met — with no lawyer, no judge, and no human being anywhere in the loop.
That is when things get genuinely strange, and it is where we go next.
This is me thinking out loud in your company — educational commentary, not financial advice. Capital is always at risk, and what you do next is gloriously your own affair.
The Jacqueline Brand — knowledge builds confidence, confidence builds wealth. This is editorial commentary for inspiration, not financial or professional advice. Always do your own research. The Collection
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