What is Bit Gold?
Bit Gold is a 2005 proposal by Nick Szabo for a financial system that combines different elements of cryptography and mining to achieve decentralization. These elements consist of timestamped blocks that are stored in a register of headers and are generated using a “proof of work” chain. In his Bit Gold announcement post, Szabo proposed a decentralized proof of working function that could be “securely stored, transferred, and tested with minimal trust.”
The name Bit Gold stands for the two main characteristics of the online payment system it represents; Time, Bit for the bits sent and received, and Gold, are these systems that resemble the quality of precious metals, serving more as a commodity and not relying on TTP.
How does Bit Gold work?
As described by Szabo in his original proposal, the Bit Gold system consists of seven steps. It starts with creating a public challenge chain using a benchmark function (similar to the math puzzle used to earn bitcoins). The user generates a proof of work of the chain from the benchmark function, and the details related to the transaction are stored in a register of headers (similar to the blockchain in a consensus system). In the Szabo system, a final chain is responsible for generating the next chain of chains. This is similar to the block generation process in bitcoin, where the hash address is used as a header that points to the next set of blocks.
The header register is similar to blockchain in that it provides an immutable record and order for the transactions that have taken place. The Bit Gold system proposed by Szabo is non-fungible. This means that different amounts of Bit Gold should be combined to make one transaction. Instead of a centralized authority controlling its leverages, Bit Gold operates on a decentralized and distributed system of trust among the individual nodes that make up its network.
Szabo also identified a bitcoin-related issue in his proposal. According to him, innovations in machine architecture can lead to hidden supply problems.
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