As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers.
Proof-of-work, the consensus mechanism underlying Bitcoin and other cryptocurrencies, can seem complicated but it's actually pretty simple. Proof-of-work deters denial of service attacks, spam, double-spending, and other abuses on a network by making them really expensive.
In a paper introducing proof-of-work to combat email spam, Cynthia Dwork and Moni Naor write, “The main idea is to have a computer compute a moderately hard, but not intractable, function, to gain access to the resource, thus preventing frivolous use.” In other words, the system eliminates email spam by making it costly to produce.
With Bitcoin, proof-of-work serves a similar function. Bitcoin is secured by a network of computers competing to solve a difficult math problem in the form of proof-of-work. The winning miner collects and stores the data into a new block, and seals it with the correct proof-of-work to finalize that data. In exchange, the miner is awarded with a block reward and fees for transactions in the block. Proof-of-work is easy to validate by other computers on the network, but time-consuming to produce. In today's competitive mining landscape, that takes specialized hardware, and electricity to run that hardware.
People commonly misunderstand proof-of-work in the context of cryptocurrencies because it doesn't intuitively makes sense that a digital currency should consume a lot of energy. But the reason proof-of-work systems work is because that energy fuels compute power, which produces new blocks and secures the network. Proof-of-work isn't an arbitrary cost. It uses economic incentives to reward good behavior and deter bad actors.
While the concept of proof-of-work seems counterintuitive, it actually bears a number of real-world parallels. In this article, we'll examine walk you through them to help you better understand proof-of-work.
The Space Race
The launch of the Sputnik I sent the first man-made satellite into space, and triggered a twenty-year “Space Race” between the US and Soviet Union.
If two countries both possess nuclear weapons capable of annihilating the other, then the solution isn't nuclear disarmament. It's to send giant rockets into space. Sounds ludicrous, but this is exactly what happened with the Space Race, where missions to space served as a proxy or “proof-of-work” in the place of real war between the U.S. and the Soviet Union.
In 1957, the Soviet Union launched the first man-made satellite into space, called the Sputnik I.
At the time, American president Dwight D. Eisenhower commented, “from what [the Soviets] say, they have put one small ball in the air.” When pressed about how he could have let the Soviet Union beat America to space, he said, “in view of the real scientific character of our development, there didn't seem to be a reason for just trying to grow hysterical about it.”
He was right. The Sputnik I was an inelegant first stab at a satellite, which circled the Earth a mere three weeks before its batteries died. Eisenhower also happened to know, courtesy of American spy planes flying over the Soviet Union, that America was winning the nuclear arms race by a ratio of 12:1. Yet, mass hysteria is exactly what followed, leading to a Space Race that cost each nation hundreds of billions of dollars.
The Sputnik I splashed a bucket of cold water over the American public. World War II was won in large part thanks to America's technological prowess in churning out guns, tanks, and fighter planes. The Sputnik I was a clear signal that America wasn't number one in everything—and that in the realm of space, the Soviets held the lead. Lyndon B. Johnson, then the Senate Majority leader, commented: “Soon, [the Soviets] will be dropping bombs on us from space like kids dropping rocks onto cars from freeway overpasses.” While this was scientifically impossible, it shows the real fear that the Sputnik I launch produced in America.
The Space Race was a new frontier in the Cold War, one in which the U.S. and Soviet Union competed in developing costly satellites and shuttles to outer space to show off the technological prowess of their nations. Each successful mission and launch sent a clear signal: “Don't mess with us, we can and will fuck you up.” It sent a message to their people and the world: “We are number one.” While the Space Race didn't directly give either nation a material edge in the Cold War, it served an important function. For the US and the Soviet Union, the Space Race was a way to fight a proxy war in space, when any real conflict on Earth would assure the mutual destruction of both countries.
The Space Race was a way of indirectly waging warfare. Each launch served as a proof-of-work of economic, technological, and military might to the other country.
While there wasn't necessarily a direct economic benefit to sending people into space, the space industry triggered technological innovation that led in everything from water purifiers to satellite television. It also boosted the economy indirectly by employing thousands of scientists and engineers.
Ultimately, however, these follow-on benefits weren't the reason why either country participated in the Space Race to begin with. It was to provide a way of proving work done in the Cold War.
Gazelles and The Handicap Principle
When they've spotted a predator, gazelles will start hopping around in a practice called “stotting.” Instead of running for the hills, they'll jump around in place, lifting all four feet off the ground simultaneously. You'd think that a small, defenseless gazelle might do something more productive when faced with imminent death, like running away for dear life. Hopping seems like a waste of energy—much like Bitcoin critics say that mining wastes electricity.
But some researchers have hypothesized that stotting is actually an elaborate survival mechanism. By prancing around, the gazelle is saying to the cheetah, “I see you.” It expends a small amount of energy to signal to the predator that it has the strength and speed to avoid capture, and that it would be better off trying to sneak up on new prey. It also takes less energy than running away would. If stotting discourages the predator in a situation where the predator could have caught the gazelle, then stotting actually saves the gazelle's life.
Stotting is an example of the handicap principle, which was proposed by biologist Amotz Zahavi in 1975. It states that for an animal to send a believable signal to another—where both animals are incentivized to be dishonest—the signal must impose a cost to the signaler to prove that the message is reliable. In the case of the gazelle, the cost is the energy required to jump in the air.
The handicap principle is a profound example of a biological precedent for proof-of-work. In Bitcoin, nodes on a trustless, decentralized network, can only produce valid blocks and earn a reward when they have put in the necessary work. That costs compute power and electricity. It's an elegant solution that has its roots not only in computer science and cryptography, but biology.
This Isn't Your Grandma's Magic Internet Money
The Space Race and the Handicap principle show us both a historical and biological precedent for proof-of-work.
In a decentralized network where nodes can't be trusted to run reliably, proof-of-work provides an incentive structure that secures the network by rewarding good behavior and making the network costly to attack. Proof-of-work is a way of embedding trust into the very fabric of this decentralized network. It takes a digital currency, and materializes it by imposing a real-world cost.