The mechanism that supports the security of Practical Blockchain: The essence of Proof of Work

Proof of Workが解決する根本的な課題

In the digital world, the transfer of money is accompanied by issues that do not exist with physical currency. This is the double spending problem. Since digital data can be easily copied, there is a risk that the same unit can be used multiple times. To eliminate this risk, the mechanism developed is called Proof of Work (PoW).

The Proof of Work, widely recognized by Satoshi Nakamoto in the 2008 Bitcoin white paper, actually traces its roots back even further. HashCash, devised by Adam Back, is an early example of a PoW algorithm that introduced the concept of computational cost as a measure against spam emails. By forcing the sender to perform light calculations, it imposed high costs on mass senders while placing a light burden on legitimate senders, utilizing the asymmetry.

Building Trust Structures in Decentralized Networks

In transactions involving a small number of participants, simple bookkeeping is sufficient because the participants can trust each other. However, as the network scales, it becomes impossible to trust everyone. This is where the consensus mechanism plays an important role.

In cryptocurrencies such as Bitcoin, Proof of Work is adopted to secure the blockchain network. This mechanism allows all network participants to reach a consensus on the validity of transaction data without the need for a central authority. Through a combination of game theory and cryptographic techniques, an environment has been created where anyone can update the system according to the rules.

Proof of Workの動作原理

In blockchain, transactions are not recorded one by one, but are added in blocks that bundle multiple transactions together. Transactions notified to the network are incorporated into candidate blocks by miners (block generators). Only when this candidate block passes verification and is incorporated into the blockchain are the transactions considered valid.

Mining and the process of solving difficult problems

The role of miners is to verify and aggregate unconfirmed transactions, organize them into blocks, and process the block data using cryptographic hash functions. In this hashing process, a hash value is generated that corresponds to a unique “fingerprint” for the input data.

The important point here is the asymmetry where it is difficult to find a valid hash value, while it is easy to verify its validity. Miners need to attempt repeatedly until they discover a hash value that meets specific conditions. Even a slight change in the block data will result in a completely different hash value, making it nearly impossible to predict the correct answer.

To solve this problem, miners use a variable number called nonce (Number Used Once). By repeatedly hashing while changing the nonce, the essence of mining is to find a hash that meets the conditions.

When a valid hash is found, the miner gains the right to broadcast that block to the network. Subsequently, other participants on the network verify whether the presented hash value is truly valid. If they perform the same calculations using the same hash function, the verification can be completed quickly.

incentive structure and fraud prevention mechanism

The powerful aspect of Proof of Work lies in its incentive design, which rewards legitimate actions while imposing significant costs for misconduct. Block rewards consist of newly issued cryptocurrencies and transaction fees. Miners are motivated by the pursuit of return on investment, guiding them towards honest behavior with an eye on profitability.

On the other hand, when a block containing fraudulent data is proposed, the authenticity of the signature is verified through public key cryptography. Each transaction is signed with a private key, and network participants can use the public key to verify that signature. At the same time, fraudulent transactions attempting to move amounts that the sender does not actually possess are also detected. Blocks containing fraudulent transactions are automatically rejected, and malicious activities only waste enormous mining costs without earning any rewards.

Network Security and Difficulty Adjustment

As the network's hash rate (computational power) increases, the difficulty of discovering a valid hash value rises. This is a mechanism to maintain a constant block generation speed. Since it requires substantial computational power and resources, it becomes a considerable burden for miners. However, at the same time, this high difficulty is the source of network security.

Comparison of Proof of Work and Proof of Stake

In the world of cryptocurrencies, there are multiple consensus algorithms besides Proof of Work. Among them, the one that attracts the most attention is Proof of Stake (PoS).

Basic Features of PoS

In Proof of Stake, the role of miners is replaced by validators. In PoS, there is no competitive mining process for hash values. Instead, users are randomly selected, and the chosen users propose (build) the blocks.

To be eligible for selection, it is necessary to perform staking by locking a certain amount of native tokens on the blockchain. This staking amount acts like a deposit and will be confiscated if the validator commits fraud. This maintains the incentive for legitimate behavior.

Challenges of environmental efficiency and security verification

The biggest advantage of PoS is its energy efficiency. It requires no large-scale mining farm facilities, resulting in significantly lower power consumption compared to PoW. In this regard, PoS has an advantage in terms of environmental consideration.

However, from the perspective of performance, the situation is different. Bitcoin's Proof of Work is the only consensus algorithm that has withstood over a decade of real-world testing, during which it has securely processed transactions worth trillions of dollars. Long-term empirical testing is required to determine whether the security of PoS is comparable to that of PoW.

Conclusion: The Legacy and Significance of Proof of Work

Proof of Work is the first solution to solve the double-spending problem, and its reliability and security have been proven. With the advent of Bitcoin, it has been demonstrated that multiple uses of the same funds can be prevented without going through a centralized management authority.

Participants in a decentralized network have made it possible for everyone to reach a consensus on the state of the financial database by combining elements such as encryption technology, hash functions, and game theory. The mechanism known as Proof of Work is not just a technical solution but an innovative invention that has paved the way for a financial system that does not require trust.