Why Proof-Of-Work Is A Superior Consensus Mechanism For Bitcoin

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The evidence is in the candy when it comes to Bitcoin’s Proof of Work versus the Proof of Stake consensus mechanism discussion.

There have been countless arguments about both Proof of Work (PoW) and Proof of Stake (PoS) as a way to gain consensus on the blockchain network.

Many people ask themselves which is better, and why? In this article, I will go through some of the main benefits and drawbacks of each compatibility mechanism.

Let’s dive in.

What is Proof of Work (PoW)?

Proof of Work is a decentralized consensus mechanism that was first introduced by Bitcoin (BTC). We will use the Bitcoin network as an example to understand the Proof of Work consensus mechanism.

The Bitcoin network essentially requires members to contribute computing power, such as GPUs, to solve arbitrary math puzzles, preventing anyone from taking control or manipulating the system.

Every transaction that occurs is validated before it is added to the blockchain. Each block is then validated by miners, who receive the equivalent BTC tokens as they put in the “work” through their processing units. Hence, this is called proof of work.

The Proof of Work compatibility mechanism has stood the test of time. This consensus mechanism has validated billions of transactions on the Bitcoin blockchain for years and has maintained its credibility and reliability as the most secure and decentralized consensus mechanism created to date.

What is Proof of Stake (PoS)?

Proof of Stake (PoS) is a consensus mechanism used in blockchain networks that was created as an alternative to the PoW method for validating transactions.

In this mechanism, cryptocurrency holders can validate mass transactions based on the number of coins obtained by the validator (instead of validated by miners). Hence, this is called Proof of Stake (PoS).

POS auditors are randomly selected. In order to become a validator, one needs to share a certain amount of cryptocurrency token that is required by the specific blockchain.

There are many variations of PoS, such as Delegating Proof of Stake (DPoS), etc. They have been developed and implemented across different blockchain networks, but they all work mostly in a similar way.

When the block of transactions is ready to be processed, the cryptocurrency protocol chooses a validator to review the block. The validator then checks if the transactions in the block are completely accurate, and if they pass the checks, the block is added to the blockchain.

In return for doing so, the validator is rewarded in the form of cryptocurrency tokens for their contribution.

However, if the validator ends up suggesting a block with inaccurate information, it loses some of its tokens as a penalty. This can happen in PoS where there are no devices that solve cryptographic puzzles (unlike in the case of PoW).

What is the best compatibility mechanism and why?

Both PoW and PoS are designed to help the nodes on the blockchain network verify all the transactions that occur.

Once nodes agree that a block of transactions is valid, the transactions are added to the blockchain. Both models offer distinct ways to achieve the same end result.

However, Proof of Work as a system for validating transactions and securing the blockchain network is much better than the Proof of Stake (PoS) model, but it comes at a cost.

Below, I’ve discussed what makes PoW a superior consensus mechanism when compared to PoS, and the costs associated with it.

Security and data health

PoW is more superior than PoS in terms of security and data reliability. This is due to the fact that in Proof of Work, data is associated with a proven history of human choices, which cannot be cheated in a system that checks each transaction individually.

This system operates with 0% confidence, and transactions are verified and recorded by network participants at 100% in the public ledger.

Proof of Work is also a very secure consensus mechanism because over a period of time, it makes the network more difficult, to the point where it becomes impenetrable – because the network is constantly being monitored by its participants. These participants now have an appearance in the game (because they need to “work” to solve transactions). This makes network hacking very expensive.

On the other hand, the POS consensus mechanism is more vulnerable to hacking and attacks.

In theory, if a network participant (or group of participants) reaches the point of owning 51% of the coins in a stack, that participant (or group) in the network can essentially control and modify the entire blockchain. This is called 51% attack.

Network Ownership

Designed to “mining” for rewards, the Proof of Work model enables a decentralized structure.

Bitcoin is a great example of this. The Bitcoin network is completely decentralized. It is not controlled by any person, entity or country. It is owned and controlled by thousands of nodes that manage the network, in a decentralized and secure system, powered by PoW.

On the other hand, PoS enables a more centralized architecture. Participants who could bet more (often the rich), could, in theory, accumulate more control simply by betting more.

This is a risky proposition because if a group of participants could eventually gain 51% of control, they could change the blockchain to take advantage of it.

Have we not seen the problems of this kind of system already? Just open your eyes and you’ll see we’ve been living in this system for a while now and see where it has brought us.

Alignment and equality of incentives

The Proof of Work model rewards miners when they solve complex math puzzles – a collective reward and a share of transaction fees in some cases. This incentivizes correct behavior as nodes compete to solve the puzzle for the reward.

The network continues to get tougher and tougher, ensuring that solving these puzzles requires more computing power. This, in turn, makes the entire network more secure and more expensive to hack or attack.

As the value of the cryptocurrency increases, so does the value of the reward. Every miner on the network has an equal opportunity to earn the reward, and in doing so, they continue to secure the network and make it strong.

This entire setup incentivizes correct behavior and discourages branching, which is the creation of an alternate blockchain when the protocol is updated.

On the other hand, in the PoS model, the incentive to get the bonus is just to raise the bet. This leads to the problem of centralization as participants do more potentially gaining greater control over the blockchain. In an unsupervised blockchain, this incentive leads to a greater security threat with less decentralization and greater susceptibility to low-cost attacks.

the test of time

The Proof of Work model has stood the test of time. The Bitcoin network is a great example of this.

In the last 13 years, the Bitcoin network has not been hacked or hacked in any way. It is the most powerful network in the world and has stood the test of time in terms of network reliability, reliability, and security.

On the other hand, Proof of Stake models are relatively newer and still in their early stages, both in adoption and implementation. Also, there is a higher level of confusion about the viability of some of these models as more and more differences emerge that are not fully tested.

Energy consumption

There have been historical arguments that Proof of Work models require excessive energy consumption, leading to increased costs and environmental impacts.

This is correct. In fact, the PoW model consumes much more power than the PoS model.

This is due to the fact that as the network difficulty increases, more and more computational power is needed to solve the complexity. This is the cost of running a very secure network.

The cash network, which needs security at its core, is already consuming energy. Let’s take paper currency for example. Fiat currencies use much more power than a Proof of Work model, such as the Bitcoin network they use.

This is because traditional fiat-backed banking services rely on fiat money, which requires resources to produce it, and results in a lot of waste. When you factor in the energy costs of banks, high-rise office space, security basements, security trucks, and other overheads, the traditional banking system appears to be More energy draining than Bitcoin.

A Proof of Work model, like the Bitcoin network, does not require any physical resources to produce it, apart from the computational power needed to maintain the blockchain. Therefore, while the Bitcoin network consumes energy, it is still more environmentally friendly than the traditional banks and fiat currency system we use today. It’s a much better solution, optimizing the power use case and an upgrade to the current system.

In other words, moving our monetary system to the Bitcoin network would not only be more efficient and secure, but would also be an essential step in the fight against global warming.

PoW is a superior system (as we discussed earlier) and it stimulates innovation and creativity in the energy consumption space as well.

Proof of work energy consumption has been greatly improved over the past few years and uses renewable energy, energy that would otherwise be wasted.

Let’s take the Bitcoin network for example. According to Q3 Global Bitcoin Mining data, the majority of Bitcoin mining is done through renewable energy.

In fact, the use of bitcoin mining energy is only 0.122% compared to the total energy in the world. According to the report, in the third quarter of 2021, mining efficiency increased by 23%, and the sustainable electricity mix increased by 3%.

Image source: bitcoinminingcouncil.com

In fact, bitcoin mining has increased 43 times in efficiency over the past seven years. In other words, its mining is 4,237% more efficient than it was seven years ago.

This report concludes that the Bitcoin Mining Board estimated a 3-fold and 2-fold improvement in mining efficiency over the next four years and the next four years.

So not only is it the most efficient use of energy today (to implement the monetary system), it is guaranteed to be significantly more efficient over the next eight years.

Bitcoin mining rewards are high, motivating miners to search for alternative energy sources, which leads to innovations in renewable energy sources. Since most of the cost of bitcoin mining goes to electricity, miners are driven to find the cheapest and cleanest possible source to maximize profits.

In fact, Bitcoin mining can be said to be one of the greenest large-scale industries globally. Most of the largest mining pools are located in areas where renewable electricity is abundant. Renewable energy sources are becoming more and more popular, as they are cleaner and cheaper than traditional forms of energy.

Many experts believe that the future of renewable energy is bright and will eventually outperform traditional forms of energy. Bitcoin mining leads the charge.

Bitcoin’s energy consumption is a small price to pay, considering the economic and social value it provides. Bitcoin deserves every bit of the energy needed to keep it going.

conclusion

When you look at all the benefits and costs of a Proof of Work form, you realize that the benefits of a Proof of Work form far outweigh the costs.

PoW is a superior system due to the fact that it is fair, secure and guarantees incentives that are in line with the goal of the blockchain network, to secure every transaction.

Proof of Work energy consumption has been greatly improved over the past few years and uses renewable energy or energy that would otherwise be wasted.

Bitcoin is backed by the PoW consensus mechanism and has stood the test of time for the past 13 years. This alone is a testament to how effective and robust the Proof of Work consensus model is.

A network built on equality, security, decentralization, and a Proof of Work consensus mechanism is designed to thrive.

This is a guest post by Mir Quadri. The opinions expressed are their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.

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