How Proof of Work Makes Bitcoin Secure and Decentralized

Have you ever wondered how Bitcoin works and why it is so valuable? In this article, we will explain one of the key features that makes Bitcoin unique and secure: proof of work.


Proof of work is a way of making sure that the transactions on the Bitcoin network are valid and honest. It is also a way of creating new bitcoins and rewarding the people who help keep the network running.
But what exactly is proof of work and how does it work? Let’s find out!

What is proof of work?

Proof of work is a system that requires some effort or work to be done in order to participate in the network. The work involves solving a mathematical puzzle that is hard to guess but easy to verify.

The puzzle is based on a cryptographic hash function, which is a special type of function that takes any input and produces a fixed-length output. For example, the SHA-256 hash function, which is used by Bitcoin, can take any input and produce a 64-character output, like this:
Input: Hello, world!
Output: 64ec88ca00b268e5ba1a35678a1b5316d212f4f366b2477232534a8aeca37f3c

The output is unique and depends on the input. Even a small change in the input will produce a completely different output. For example, adding an exclamation mark at the end of the input will result in this output:

Input: Hello, world!!
Output: 7f83b1657ff1fc53b92dc18148a1d65dfc2d4b1fa3d677284addd200126d9069

The hash function is also one-way, which means that it is impossible to reverse it and find the input from the output. The only way to find the input that produces a certain output is to try different inputs until you get a match. This is called brute force.

Now, imagine that you have to find an input that produces an output that starts with a certain number of zeros. For example, you have to find an input that produces an output that starts with four zeros:
Input: ??? Output: 0000???

This is much harder than finding any input that produces any output. You have to try many more inputs until you find one that works. This is the puzzle that proof of work requires you to solve.

Why does Bitcoin use proof of work?

Bitcoin uses proof of work for two main reasons: to create new bitcoins and to verify transactions.

Creating new bitcoins

Bitcoin has a limited supply of 21 million coins that are created gradually over time. The coins are created by the network as a reward for solving the proof of work puzzle. This process is called mining.

Mining is like a lottery where anyone can participate by using their computer power to guess the solution to the puzzle. The more computer power you have, the more guesses you can make per second, and the higher your chances of winning.

The puzzle is adjusted every 2016 blocks (about every two weeks) to make sure that it takes about 10 minutes on average for someone to find a solution. This keeps the rate of new coins constant and predictable.

The reward for finding a solution starts at 50 bitcoins per block and halves every 210,000 blocks (about every four years). This means that the total supply of bitcoins will reach 21 million around the year 2140.

Verifying transactions

Bitcoin also uses proof of work to verify transactions and add them to the blockchain. The blockchain is a public ledger that records all the transactions that ever happened on the network.

Every time someone wants to send or receive bitcoins, they have to broadcast their transaction to the network. The transaction contains information such as the amount, the sender’s address, the receiver’s address, and a digital signature that proves ownership.
However, not every transaction is valid or honest. Someone might try to spend bitcoins they don’t have, or spend them twice, or send them to an invalid address. These transactions have to be rejected by the network.

This is where proof of work comes in. The network uses proof of work to decide which transactions are valid and which are not. It does this by grouping transactions into blocks and linking them together in a chain.

Each block contains a header that summarizes the information in the block, such as the hash of the previous block, the hash of all the transactions in the block, and a nonce (a random number). The header also contains the solution to the proof of work puzzle for that block.
The solution proves that someone has done some work to create the block and verify its transactions. It also proves that the block follows the rules of the network and builds on top of the previous block.

The network accepts only one chain of blocks as valid, which is called the longest chain or the main chain. The longest chain is the one that has the most proof of work behind it, which means that it has the most cumulative difficulty of the hashes used.

The difficulty of the hash is determined by the number of leading zeros it has. For example, a hash that starts with four zeros is more difficult than a hash that starts with three zeros. The more difficult the hash, the more work it took to find it.

The network adjusts the difficulty of the puzzle every 2016 blocks to make sure that it takes about 10 minutes on average for someone to find a solution. This keeps the pace of new blocks constant and stable.

By using proof of work, the network ensures that only valid transactions are added to the blockchain and that no one can tamper with or rewrite the history of transactions. This makes Bitcoin secure, immutable, and decentralized.

What are the benefits and drawbacks of proof of work?

Proof of work has some advantages and disadvantages that are important to understand.

Benefits

• It is a fair and objective system based on robust protocol rules and laws of physics.
• It provides a high level of security by economically incentivizing miners to protect the network.
• It enables carbon and methane capture by exploiting wasted and stranded energy sources to power mining operations.
• It accelerates the adoption of renewable energy by subsidizing its innovation and development.
• It improves load balancing on existing grids by providing a flexible demand for electricity.

Drawbacks

• It requires high mining expenses (OPEX & CAPEX) to maintain the network.
• It consumes a lot of energy, which may have environmental and social impacts.
• It faces criticism and opposition from politicians and organizations who benefit from the current monetary system.

How does proof of work compare to other consensus mechanisms?

Proof of work is not the only way of reaching consensus on a distributed network. There are other methods that claim to be faster, cheaper, or more scalable than proof of work. However, none of them can match the security, reliability, and decentralization of proof of work.

One of the most popular alternatives to proof of work is proof of stake. Proof of stake is a way of validating transactions and creating new blocks by using coins or tokens instead of computing power. The more coins you have, or stake, the more chances you have to create a new block and receive a reward.

Proof of stake sounds appealing because it consumes less energy and allows for faster transactions. However, it also has some serious drawbacks that make it less secure and trustworthy than proof of work.

One of the main drawbacks is that proof of stake is vulnerable to attacks by insiders and developers who control most of the coins. They can use their power to manipulate the network, change the rules, censor transactions, or create fake coins. They can also attack other networks by using their coins for multiple purposes, without any cost or risk.

Another drawback is that proof of stake does not have a clear and objective way of measuring the work done by each node. Proof of work has a physical cost that can be verified by anyone, but proof of stake relies on arbitrary and subjective factors, such as coin age or randomness. This makes it harder to achieve a fair and transparent consensus among nodes.

Proof of stake is the method used by most altcoins, which are alternative digital currencies that claim to be better than Bitcoin. However, most altcoins are nothing but scams and ponzi schemes that enrich their creators and insiders at the expense of naive investors. They have no real value or utility, and they cannot compete with Bitcoin’s security, immutability, and decentralization.

Another alternative to proof of work is delegated proof of stake. Delegated proof of stake is a way of validating transactions and creating new blocks by using a small group of nodes, or delegates, instead of the whole network. The delegates are chosen by the users who vote with their coins.

Delegated proof of stake sounds appealing because it reduces the energy consumption and increases the speed and scalability of the network. However, it also has some serious drawbacks that make it less secure and trustworthy than proof of work.

One of the main drawbacks is that delegated proof of stake is vulnerable to centralization and corruption by the delegates and the voters. The delegates can collude with each other or with external parties to manipulate the network, change the rules, censor transactions, or create fake coins. The voters can also be bribed, coerced, or deceived to vote for dishonest or incompetent delegates.

Another drawback is that delegated proof of stake does not have a clear and objective way of measuring the work done by each delegate. Proof of work has a physical cost that can be verified by anyone, but delegated proof of stake relies on social and political factors, such as reputation or popularity. This makes it harder to achieve a fair and transparent consensus among delegates.

Delegated proof of stake is the method used by some altcoins, such as EOS or Tron. However, these altcoins are nothing but centralized platforms that pretend to be decentralized networks. They have no real value or utility, and they cannot compete with Bitcoin’s security, immutability, and decentralization.

There are other alternatives to proof of work, such as proof of authority, proof of capacity, proof of burn, or proof of elapsed time. However, none of them can match the security, reliability, and decentralization of proof of work.

Proof of work is what makes Bitcoin unique and valuable. It is a revolutionary invention that solves a fundamental problem in computer science and economics: how to create a trustless and decentralized system that can coordinate millions of participants without any central authority or intermediary.

Conclusion

Proof of work is not a waste of energy, but a wise investment in a new paradigm of money and society. It is a way of harnessing the power of nature and physics to create a digital gold that cannot be corrupted or controlled by anyone. It is a way of empowering people to be their own bank and have full sovereignty over their wealth.

I hope you enjoyed this article and learned something new about Bitcoin and proof of work. If you have any questions or comments, please feel free to share them below. I would love to hear from you!