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Reaching a Consensus Part 1: Proof-of-Work

Reaching a Consensus Part 1: Proof-of-Work

One of the fundamental beliefs within crypto is the idea of consensus. Decentralization hinges on the ability for an incredibly large number of individuals to all agree on the same history for each blockchain. Practically speaking, it would be like asking a hundred thousand people to all agree on a history of visa transactions. There would be no way for an individual to actively verify that the information is correct.


As a result, we’re forced to put our trust into those people who are maintaining and building the blockchain to continue building it honestly, and that they will not start inventing transactions and blocks, which would ultimately corrupt the very nature of blockchain and decentralization.


“Hold on a minute” you might think to yourself. Blockchain and cryptocurrency are supposed to be trust-less, meaning we specifically don’t need to have trust in the people we’re dealing with. You’d be correct. This is where consensus algorithms come in. These algorithms ensure that the miners who are tasked with keeping, maintaining, and building the blockchains, continue to adhere to the rules, and do not corrupt the validity or authenticity of the blockchain networks.


There are two major types of consensus algorithms: Proof-of-Work, and Proof-of-Stake. This is an overview for Proof-of-Work.



Proof-of-Work consensus requires individuals who want to add blocks to the blockchain, also known as miners, to solve an incredibly complex mathematical equation. Due to the complexity of these equations, miners will often purchase expensive specialized hardware for this specific purpose.


In order to complete the calculation and solve the equation, miners are required to guess a random number, called a nonce. The nonce ensures that it is impossible to predict who will be able to add the next block and adds an aspect of randomness to block creation.


Miners are rewarded in cryptocurrency for adding blocks to the blockchain, and the equation needs to be solved again and again for each block to be added. On average, it will take a large group of miners approximately 10 minutes to solve an equation and add a block to the Bitcoin blockchain. This creates a race, where each miner is attempting to solve the equation and add a new block as quickly as possible in order to be able to claim the reward.


The theory behind the Proof-of-Work consensus mechanism is this: Solving equations, adding blocks to the blockchain, and thereby processing blockchain transactions is an incredibly costly investment. The hardware is expensive to both obtain as well as to use. As a result, Proof-of-Work miners are incentivized to maintain the authenticity and validity of the blockchain, since if they do not, people will stop using the network, and their investment will be lost. Alternatively, if they process blocks honestly, they will be rewarded with cryptocurrency, which will (in theory) offset the cost of processing blocks.


The Proof-of-Work consensus algorithm has some real advantages. Most notably, it is resistant to the infamous 51% attack, since it’s nearly impossible to amass 51% of the computing power on the bitcoin network. Additionally, Proof-of-Work systems are incredibly adaptive to ensure a predicted time to solve the equation and add a block. If the computational time starts to exceed 10 minutes, the network will begin to reduce the difficulty of the equations. Similarly, if the equations begin to be solved too quickly, the difficulty will be increased. This ensures that both the system and users can expect a new block to be added to the blockchain approximately every 10 minutes, regardless of how many or how few miners there are.


While the Proof-of-Work consensus mechanism is excellent at ensuring an ongoing vested interest in maintaining the accuracy and trust in the blockchain, there are a number of areas where it is significantly less effective. The most notable being the resources needed to maintain the system.  For the Proof-of-Work system to remain effective, it needs to have a large number of miners working simultaneously with incredibly powerful computers. Due to the power of these machines, they require a considerable amount of power to run, and create a huge impact on our global resources within the real world. It is estimated that a year of crypto mining could consume as much power as 5 million homes in the USA.


Another shortcoming from the Proof-of-Work system is the ability to scale and handle the traffic that will come with mass adoption. As an example, each block on the blockchain can only contain a finite number of transactions. A Bitcoin block contains approximately 2000 transactions, and those transactions can only be processed by being authenticated and validated by the blockchain through correctly guessing the nonce and solving the equation. This occurs, on average, once every 10 minutes. By contrast, Visa, on average, processes roughly 1500 transactions every second.


Do not fear, all is not lost! Blockchain developers are constantly looking to advance the technology to be able to adapt to the needs of the platform and system. SegWit and SegWit2x are both proposals that would effectively increase the number of transactions that could be processed every 10 minutes by both reducing the storage size of each transaction, and by increasing the maximum size of each block, respectively.


Additionally, the Zero Confirmation Transaction proposal is working to enable instantaneous transactions by running a check on them when they are broadcast to the network, but prior to their being confirmed within the immutable ledger of the blockchain itself.


Proof-of-Work and SIRIN LABS

All proposals like these have potential advantages and disadvantages within their implementation, which makes choosing a blockchain platform for any company a tricky endeavor. SIRIN LABS has been exploring the potential within both existing as well as developing blockchain technologies in order to understand which one will best suit the needs of our devices, and users.


Proof-of-Work creates additional challenges as a potential blockchain for SIRIN LABS due to the innate costs associated for the mining of blocks. These costs cause micropayments (the small 1$-5$ purchases) that we make regularly much less efficient. Nevertheless, we will continue our search, and if it doesn’t appear that our needs will be met, we will develop our own to ensure our users will have the freedom and functionality needed.


Regardless of whether SIRIN LABS chooses to use an existing blockchain, a new technology, or develop something independently, one thing is crystal clear. When mass adoption of cryptocurrency hits, all blockchains will need to have already evolved to meet the demand, or risk being left in the dust of the crypto revolution.


Go Crypto!


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