Proof of Work Summary [Cryptocurrency consensus mechanisms]

PoW uses a brute force approach where miners compete to find block hashes beginning with a certain number of zeroes.

The more zeroes, the more difficult it is to find such hashes.

The PoW Challenge

In essence, PoW makes it very expensive to defraud the system by requiring expensive hardware and high electrical consumption during the mining process.

While one Bitcoin block yields approximately U$ 100k in rewards at the time of the writing (June 2018, with Bitcoin priced U$ 7800) it would currently cost around U$ 350k in electrical energy alone to attempt to defraud a single block.

Not only is the energy cost extremely high, there is a high probability that this attack would not succeed.

Therefore attempting to hack a Bitcoin block would very likely not yield any profit for potential scammers.

By some estimates, the total cost of a Bitcoin hack attempt could pass the U$ 1 million mark. All this for just 10 minutes of a chance to hack Bitcoin.

This game theoretic condition lies at the root of the Bitcoin blockchain integrity.

Environmental Concerns

All the computational power used in Proof of Work schemes is spent solely to prove that you attempted an average number of hashes before finding the block.

The work is not actually useful at all, which attracts some criticism towards this kind of system, especially at a time when renewable energy and environmental conservation are being debated all around the world.

Proof of Work’s Legacy

Most cryptocurrencies currently use Proof of Work since they inherited the fact that Bitcoin is the first and most popular cryptocurrency, having introduced the innovative consensus mechanism in 2008.

All first generation cryptocurrencies were forked from Bitcoin.

Either they forked the source code completely, then changed the cryptographic hashing function, or simply forked the existing blockchain and created their own version of Bitcoin (e.g. BCH, BSV, BTG among others).

For instance, Litecoin and Dogecoin forked the original Satoshi Nakamoto source tree and changed Bitcoin’s SHA256 hashing function to scrypt, a heavier system that attempted to make it too expensive to mine these two coins using ASIC’s. (A failed attempt as we now know, since Bitmain sells scrypt ASIC-based mining machines.)

Links

Return to main article: ELI5 Summary of cryptocurrency consensus mechanisms

Proof-of-Work, Explained

PoW at Bitcoin Wiki

Wikipedia Entry

Summary of Proof of Work

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