A historical consensus protocol and overconsumer of resources: Analysis of the proof-of-work system
Historically speaking, in 1997, even if the term Proof-of-Work was never clearly used in HashCash protocol whitepaper, the ideas previously presented evolved into what we understand to be a modern Proof of Work mechanism today. The first introduction of this concept was aimed at being an anti-spam used for mailboxes. Proof-of-Work, commonly known as POW, was the first protocol introduced in the blockchain ecosystem, therefore bringing several advantages and drawbacks as with every technical progress. However, depending on the protocol used, certain rules are specific to the system that uses them, such as the size of the blocks and the duration of transaction processing among others.
In cryptocurrencies, Proof-Of-Work is a method used to create new blocks in a blockchain. With this method blocks are created and contain all the information of the last validated transactions. In the case of Bitcoin, this includes all previous transactions for the last 10 minutes. This protocol has been implemented in order to fight against denial of service (DDoS) attacks aimed at saturating the network. The coins are therefore mined using the Proof-of-Work protocol and verified by miners who are the nodes of the network.
Otherwise, anyone could create a block and claim that it is valid, generating bad behaviours in the network. The mining difficulty or the complexity of mathematical calculations is regularly adjusted depending on the number of miners and blocks already mined. At the start of Bitcoin launch, it was easy to mine with a simple computer at home. Now the difficulty has increased so much that it is only profitable to mine with very powerful and energy-consuming machines. Most mining networks are now in the hands of huge mining companies in China and across the world and it is therefore unprofitable to self-mine Bitcoin directly. However, this drawback only applies to reputable and widely used blockchains. Thanks to the diversity of existing projects based on a POW system, it is still possible for individuals to continue to mine certain cryptocurrencies with their computers or specialized low-end equipment.
How does it work?
In short, miners will compete to solve mathematical problems in order to be the first to find the answer to be able to create or validate a block. These mathematical puzzles are solved by extremely complex calculations performed by computer machines using a specific hash algorithm. In the vast majority of cases, a graphics card is used to solve these calculations (the other methods are described below). The principle of PoW is to find a value verifying a calculation. This value is completely hazardous and to find it computers will test thousands or even millions of possibilities per second. When the value is decrypted then the block will be created by the miner who found it. Network nodes accept the longest blockchain, as in the proof of stake protocol. Today, with the craze associated with cryptocurrencies, various mining methods have been implemented to offer a solution to the general public:
- CPU Mining: Using a normal computer’s CPU/processor to validate transactions.
- GPU Mining: Mining through graphic cards. Overall, graphic cards are more powerful whilst using less electricity in most cases.
- FPGA Mining : Field-programmable gate array mining is a circuit tailored for a specific computer task , making them really faster at mining than normal processors
- ASIC Mining: Application-specific integrated circuit is customised for a particular use. In general, ASICs easily outperform the previous methods in terms of both speed and efficiency.
- Mining pools: This solution has been implemented to solve the issues tied to solo-mining and related costs. Today, in 2020, miners group their resources together, increasing the chance of mining a new block and sharing the rewards proportionally to the hashing power.
- Cloud Mining : Miners can rent their processing power to other miners for a defined period of time
Advantages & Drawbacks
++ Very important security because minors validate transactions, there is little chance of seeing the network saturated with false transactions — Anti-DDOS.
++ POW was the first protocol to be introduced and therefore is widely used among various crypto projects.
— Not ecological, the energy used for the resolution of mathematical calculations is very important. The latter is estimated to be greater than the annual electricity consumption in certain countries. This consequence is also related to the associated high expenditures as mining requires highly specialized computer hardware to run the complicated algorithms
— If the gains are more attractive on another blockchain then miners can migrate and leave the network vulnerable
— The earnings are usually sold directly which lowers the price of the cryptocurrency. Immediate resale is very common in order to cover the costs associated with the cost of the electricity used as well as the reimbursement of mining equipment in certain cases.
— If a person controls more than 51% of the computing power then he can carry out a 51% or double-spending attack . In short, the 51% attack, also called double spending, is an attack where it is necessary to have at least 51% of the mining computing power of a POW network.
As an example, we can quote the successful Ethereum Classic blockchain attack carried out at the beginning of 2019. This potential problem tends to worsen with the centralization of mining power with large companies specializing in the field. More details about a 51% attack case can be found directly in this article published by Cointelegraph: https://cointelegraph.com/news/ethereum-classic-51-attack-the-reality-of-proof-of-work
