Proof of work: definition, how it works
- Proof of work is used to confirm and record Bitcoin transactions without a central authority.
- It discourages attacks on a crypto blockchain by making it expensive to verify transactions.
- Proponents of proof of work argue that it is more secure than other mechanisms such as proof of stake.
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The most notable feature of Bitcoin is its decentralization. It operates safely without the intervention of a central authority. A distributed network of users stores and maintains the digital ledger that records transactions – called a blockchain – on their own computer hardware.
However, this raises an important question: Without a central authority to act as the final arbiter, how does Bitcoin ensure that no one is manipulating the blockchain for their own purposes? The answer is proof of work.
Proof of work is a consensus mechanism used to confirm that network participants, called miners, calculate valid alphanumeric codes – called hashes – to verify Bitcoin transactions and add the next block to the blockchain. To do this, other participants in the network verify that the required amount of computing power has been used by the miner who is credited with calculating the valid hash.
What role does proof of work play in cryptocurrencies?
proof of work is all about creating a positive incentive for people to invest in the resources needed to add valid blocks to a cryptocurrency’s blockchain.
“The challenge in a blockchain like Bitcoin is to maintain an agreed transaction record without having a central authority,” explains William J. Knottenbelt, professor in the computer science department at Imperial College London. “The key question, then, is how a peer group of similar status can agree on which of them should be allowed to add to the common transaction record.”
The process of calculating a hash is intentionally made computationally extremely difficult. By forcing participants to invest large sums in computing resources, the proof of work mechanism creates a deterrent against attempts to undermine the integrity of the blockchain. It also reduces the risk of a single Bitcoin being simultaneously spent more than once – known as double spending – which would destroy confidence in the cryptocurrency.
“Proof of work is how miners (block editors) prove to the world that they’ve done the work necessary to create a well-formed block of transactions to add to the blockchain.” said Knottenbelt. “From a miners perspective, they turn the energy they put into finding valid blocks (which they usually buy special high-performance hardware for) into money (in the form of the rewards they get from Coinbase rewards. and transaction fees). “
Bitcoin mining is essentially a competition where miners all race to be the first to solve extremely complex crypto puzzles, allowing them to add the next block to the blockchain and receive payment in the form of new Bitcoins. The winning miner does not receive the reward until the other systems in the network, via the proof of work protocol, have verified that the solution is correct and valid.
This involves a significant amount of computation, as the equipment used by miners has to go through a lot of trial and error before finding the right hash.
“The proof of work uses a lottery mechanism – miners create candidate blocks of transactions (including a reward for themselves) which must meet several strict conditions,” Knottenbelt explains. “They then test to see if those conditions are met. Most of the time they aren’t and the miner has to go back and try again.”
It is because most candidate blocks do not include the correct hash that so much work is involved in verifying Bitcoin transactions. And indeed, the difficulty of this process may increase or decrease, in order to ensure that new blocks are produced at regular intervals.
“The difficulty of the lottery is periodically adjusted so that if the blocks are produced too quickly it becomes more difficult to meet the conditions necessary for the production of a valid block and if the blocks are produced too slowly it becomes easier. “, adds Knottenbelt.
Where does proof of work come from?
Although the proof of work is primarily associated with Bitcoin, its sources go further back in time than in 2008, when the pseudonym Satoshi Nakamoto published the Bitcoin white paper. The concept has been around in the computer world since at least the early 1990s, and the term “proof of work” is believed to have first surfaced in an article by computer scientists Ari Juels and Markus Jakobsson in 1999.
With Bitcoin, Nakamoto based the cryptocurrency’s proof of work mechanism largely on Hashcash, a denial of service countermeasure described by Adam Back in 1997. In particular, Nakamoto envisioned proof of work as a way to ensure that it becomes exponentially difficult to attack the Bitcoin Blockchain as more blocks are added to it.
Which cryptocurrencies use proof of work?
Aside from Bitcoin, pretty much all cryptocurrencies based or derived from it also use proof of work. These include:
- Bitcoin Cash
- Bitcoin SV
- Bitcoin Gold
There is also a wide variety of other non-Bitcoin-based cryptocurrencies that currently use proof of work, including:
- Ethereum Classic
While proof of work is popular, another consensus mechanism known as proof of stake is also widely used. Instead of checking the amount of computational work done, Proof of Stake uses the amount of cryptocurrency blocks that cryptocurrency block publishers are willing to deposit as insurance against their misconduct.
“Conceptually, this is quite attractive because it shortens the step of investing in high performance mining equipment and also the energy involved in using that equipment,” explains Knottenbelt.
However, Proof of Work advocates argue that Proof of Stake and other consensus mechanisms inevitably lend themselves to some form of centralization, which is precisely what proof of work was designed to avoid.
“The proof of stake is fundamentally centralized,” says Jimmy Song, Bitcoin author, educator and developer. “There is no way of telling who to go with in the event of a conflict.”
Advantages and disadvantages of proof of work
This leads to considering the relative advantages and disadvantages of proof of work compared to other mechanisms, such as proof of stake.
More importantly, Proof of Work arguably offers a higher level of security than other means of consensus, with Bitcoin now operating for over a decade without failures or significant compromises.
“From a safety perspective, proof of work has been shown empirically to work very well for over 10 years,” says Knottenbelt. “The jury is still out on proof of stake.”
But while proof of work offers an optimal level of security and decentralization, it imposes a significant cost: it consumes a considerable amount of energy.
By some estimates, the proof of work leads to the Bitcoin blockchain using energy equivalent to the consumption of a country the size of Thailand each year. It also produces a large amount of electronic waste in the form of mining units which are discarded for ever more powerful models.
For anyone who appreciates Bitcoin and thinks it is an important contribution to the evolution of money, such energy consumption and waste is a justifiable price to pay for the only consensus mechanism that has really happened. proven to be robust on a large scale. Conversely, for anyone who remains skeptical of cryptocurrencies, this is fundamentally an outrage.
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Proof of work is a consensus mechanism that ensures that miners add a new block to a cryptocurrency’s blockchain only after producing a substantial amount of computational work to prove that it is valid.
Because proof of work requires a large investment of resources, miners and network participants are increasingly less likely to seek to undermine a cryptocurrency’s blockchain. This is particularly the case with Bitcoin, which has been operating on a large scale for a dozen years without suffering a double-spending attack.
However, proof of work also requires the expenditure of a large amount of electricity. This is something Bitcoin critics would say it has too great an environmental impact to justify the enhanced security it offers over mechanisms like proof of stake.