An in-depth beginners guide on Proof of Work(PoW). What the what. Is this for real. Yes, it’s.
Hello everyone. Welcome to this post on Proof of Work(PoW) by Coingyan. This post is going to revolve around Bitcoin.
Alright, let’s get started.
What is Proof of Work(PoW)
It’s the first distributed consensus mechanism that the anonymous creator of Bitcoin “Satoshi Nakamoto” had begun for operating his blockchain based network. After this, other cryptocurrencies like Ethereum joined the party.
The concept of PoW was primarily used by Cynthia Dwork and Moni Naor in 1993. Markus Jakobsson and Ari Juels coined the terminology within a document that was published in 1999.
In PoW, all the computers in the system perform a specific function i.e. keeping the blockchain secure.
Miners within the bitcoin network aid in keeping the platform safe and secure for its end users. Their job is to solve a bunch of puzzles that include a mathematical function known as a hash.
This task is as easy as eating a banana (for a computer) but super-duper repetitive in nature. As a result of that, it is computationally expensive i.e. very costly to operate in the long-run.
All the miners onboard battle it out to find a hash with certain properties. The person that wins this battle gets to add a new block of transactions on to the blockchain. She/He, in turn, gets rewarded with a couple of bitcoins on the bitcoin blockchain for his work. ( You know I don’t work for free. Right?)
As of now, the current rate of reward is 12.5 BTC per block. Besides that, miners are also provided a small transaction fee paid by users for sending coins to each other.
What is a mathematical puzzle
A mathematical puzzle is something that needs huge amounts of computational power for solving it.
You can also view it as a maths teacher giving out questions that the students within the class have to solve. The person ( miner ) that gets the answer right gets rewarded with a candy ( over here 12.5BTC/Block.)
It involves these things:
Hash Function: It involves taking in an input value and then churning out a specified output every single time you run it. For Example: If you input X amount of value you’ll always receive the same Y amount of value as your output.
Integer Factorization: In simple words, this allows you to display a number as a multiplication of 2 other numbers.
Hash: It’s the answer or rather the solution to the mathematical equation a.k.a. the PoW problem.
As the network evolves so do the complexities associated with it. You now need to feed the system with more computational/hashing power for solving puzzles and claiming rewards. Thus, the degree of difficulty of each task is varying in proportions to the time and resources possessed by individual miners.
How is it employed within a blockchain
Within a blockchain, there a lot of transactions that need validation. Thus, our friends a.k.a. miners solve puzzles, forge new blocks, verify a bunch of transactions and upload new blocks onto the bitcoin blockchain.
The complexity of every puzzle on the blockchain depends on:
The number of available users, required amounts of hash power and amount of load that can be borne by a particular network.
When a miner manages to solve a given puzzle a new block arrives in the Bitcoin arena. All the transactions from that puzzle get batched into his new block which is considered to be valid.
Proof of work is a part of several cryptos like Bitcoin, Ethereum, etc.
Bitcoin being the first and most important application of this type of consensus mechanism.
Also, it was bitcoin that laid the groundwork for this consensus mechanism (C.M.) employing Hashcash puzzles during its start in 2009. The idea behind this was that the algorithm would help in changing the complexity of a puzzle based on the total network power. This would allow a person to mine a block on bitcoin ( approx time nowadays is 10 mins. for a block ).
Litecoin also implements this feature in their blockchain.
Ethereum is another Big shot employing this mechanism.
Given that these 3 giants have considered this mechanism for establishing consensus within their respected platforms, I assume it’s safe to say that PoW is a very important and useful mechanism for achieving the required consensus within a blockchain.
Whether other platforms choose to use it is a different story.
How does mining happens in PoW
By now we know that proof of work is a prerequisite for defining an already expensive computerized calculation a.k.a. mining. Its (i.e. mining of blocks) execution is vital for creating a cluster of trustless transactions ( Our Beloved Block ) within a distributed ledger known as the blockchain.
But why on Planet Earth do you need to do this?
1). To avoid double spending of transactions.
2). For validating the integrity (Legitimateness) of existing transactions.
3). For rewarding miners for their work. Ain’t nobody got time to work for free. Okayy.
Alright, but how does a transaction happen?
Whenever a person on Bitcoin’s Network incurs a transaction, this is what happens behind the scenes.
Firstly, a bunch of transactions get batched into a block.
Secondly, miners verify that all the transactions within the block are 100% Legitimate. To do this they solve mathematical puzzles known as proof of work problems.
Being a little sarcastic here. Paying attention in the Maths class paid off. Lol.
Okay, where were we. Yeah, miners solving mathematical puzzle problems. So, like the gold star you used to get for giving the right answer in the maths class, over here, you get 12.5 BTC/block. Mwah.
Finally, verified transactions get broadcasted to the public blockchain.
But technically speaking the mining process is like more of inverse hashing. Now what I mean here is that a predetermined number or rather a nonce is chosen so that the cryptographic hash ( algorithm of block data ) results in less than a given threshold.
This threshold a.k.a. difficulty, is how the competitiveness of mining gets determined. As the blockchain evolves more computing power is needed for adding blocks to the network. The higher this parameter grows the more the computing power is unloaded onto the network. Thus, increasing the average number of calculations that are required for creating a new block.
This procedure also boosts the cost of block creation in a significant manner which encourages the miners to upgrade their mining systems for maintaining a positive economic balance within the blockchain.
It’s imperative that this parameter update happens approximately every 2 weeks.
A new block is generated every 10 minutes.
Why even bother about it
If you want to make money from this PoW opportunity then these two things ought to be music to your ears.
a). Anti-Dos attack defense. b). Mining possibilities don’t get affected by your stake hold in the system.
A). Anti-Dos attack defense:
With PoW there are certain bondages to your freedom of action within the platform ( over here Bitcoin). You need a significant amount of time, effort, and resources for doing vast amounts of work.
A killer attack ( one that could drain the system of its funds ) requires huge chunks of time and computational power to achieve fruition of its lame desire. Thus, a possibility for exploitation exists but striving for it seems unnecessary. Remember the Oscar award I always keep talking about. This attempt definitely deserves it with the title named “The stupidest attempt in blockchain History”.
In short, this “Anti-Dos attack defense” sort-of prevents mishaps from happening on the blockchain. Otherwise, kiss goodbye to your funds because somebody hacked your account.
B). Mining possibilities:
You don’t need a big fat account balance for doing tons and tons of work within this mechanism. All you need is a lot of time and computing power for solving puzzles and forming new blocks. Take that whale power ( People with a lot of stake in a system ). Lol.
What is a 51% attack
This smells danger because your funds are at stake if a 51% attack happens. Now what I mean by a 51% attack is that a user or a group of users somehow gain complete ownership over more than half of the network. They can make fraudulent transactions and receive rewards for them.
A hard fork could also be on the cards. An analogy to explain this point is the DAO incident wherein the Ethereum blockchain got hacked of its funds( $51 million to be precise).
But this is a useless idea because if you get caught and this gets publicized then you could lose all your funds. As a result, the currency could experience a big drop in price along with a lot of members leaving the network. This means all that time, money, strategy, etc goes down the drain. Now sit and cry.
Pros and cons of PoW
- Stake hold doesn’t influence mining opportunities. Thus, anyone with enough computing power can forge a new block onto the system
- If you have the required set-up (a mining rig/rigs) you could cash in big time on this PoW opportunity.
- Mining a lot of Bitcoins is getting too expensive. The mining difficulty will only become more challenging as the Bitcoin blockchain evolves.
- There are only 21 Million Bitcoins in existence. Not more or less. You’ll not be receiving any mining rewards once all the Bitcoins get mined. Hereafter, you only get transaction fees for your work as a miner.
And with this, it’s a wrap for this post. Thank you so very much for reading through until the end. Please remember to follow us on your social media accounts Facebook, Twitter, Steemit, Youtube. And for your coin related information, you can always rely on Coingyan because delivering accurate information in an interesting manner is our motto for every member as well as non-members of our community. I’ll take your leave for now and be back with another interesting post soon. Till then have a nice day and keep on learning and earning my “Coiners”.