The only viable form of consensus is proof-of-work

This is an opinion editorial by Pierre Gildenhuys, the co-founder of a Hong Kong-based social environment tech startup.Proof-of-work is the consensus mechanism that the Bitcoin protocol uses. This means that transactions that have occurred on the network must be verified. The proof-of-work functions are performed by specialized “computers” called application-specific integrated circuits, or ASICs. These computers input transaction data, information from previous block hearers, and a nonce (random numbers) to guess the hash function result. Because hash functions are one-directional mathematical formulas, it is difficult to determine the resulting output from publicly visible inputs other than by rapid guessing like these ASICs. These are the people who operate the machines. They want to increase the number (or guesses per second) of hashes that their devices can produce. They also want to find the most profitable source of energy to help them pay off their machines and make an income. It is a highly competitive industry due to Bitcoin’s difficulty adjustment. Depending on how many hashes are being mined per second, the difficulty and complexity of the hash function will change. Each new block is found across the global network in an average of 10 minutes. Blocks are a collection or transactional data that must be transmitted. They are added to a chain that contains all the blocks on the network. This “blockchain” will only be transmitted when the answer to the Hash Function is found. Users pay transaction fees to miners, and they also earn a block subsidy. This subsidy started at 50 bitcoins and is now halved every 210,000 blocks. It is approximately every four years. The current block subsidy is 6.25 Bitcoin per block. The Bitcoin protocol allows for a maximum of 21 million bitcoin to be issued. All mining rewards will be paid in transaction fees. Proof-of-work is fundamentally important. There is a real cost to producing bitcoin. There is a real-world cost to defending the integrity and accuracy of Bitcoin.Bitcoin has “unforgeable costliness,” meaning that it would only be possible to make fake bitcoin or fraudulent bitcoin transactions through redoing all of the costly proof-of-work that came before it, at a rate that outpaces all of the ongoing proof-of-work on the network.It has already become too costly and unfeasible to gain the 51% needed for any individuals, nation-states or organizations to take control of the network for their benefit and maliciously change the transaction history.This is contrasted by proof-of-stake which serves as the consensus mechanism for many altcoins, digital penny stocks and the other Ponzi schemes being marketed as alternatives to bitcoin.Proof-of-stake works through “staking” or more simply put, locking the tokens of that protocol so that they cannot be spent. The number of tokens you stake determines your chances of validating a block transaction. The probability of validating a block of transactions is determined by how many tokens you stake. Sam Callahan’s study found that Ethereum had an officially acknowledged premine of 20%. This is the lowest among all altcoins. It means that insiders would only need to acquire an additional 31% from public launch to modify the protocol in any way that benefits them. Although Bitcoin has a proven 0% premine, it is impossible to change the protocol by changing the number of bitcoins owned by any group or individual, unlike other altcoins. True consensus of 51% of the work done for the network is the only way to change Bitcoin protocol. This has been historically difficult and leaves the virtues intact, unless there are significant changes that benefit everyone on the network. This is best understood by researching the “Blocksize War”. The implications of proof-of-stake:Proof-of-stake has no real-world cost of production. A majority 51% stake is easily acquired by wealthy individuals, nations and organizations so they can change the rules of the protocol to benefit themselves.The defense of proof-of-stake tokens relies purely on the trust in everyone with enough capital or enough tokens to not change the protocol.Proof-of-work is a good use of energy as it secures a global monetary network in a way where no one can change the rules or produce more tokens to inflate the supply, meaning that it becomes a financially suitable money to hold for a long period of time. Because it doesn’t address the problem of malicious parties intervening anywhere in the world, proof-of work is an inadequate replacement. Blockchain is not new technology. Financial payment rails can be built that are faster than any other platform that uses blockchain. Blockchains can distribute all information about transactions to thousands worldwide, making it more slow than simply distributing balances from one central system. Bitcoin uses a blockchain because it must be truly decentralized. With the help of proof of work, it is proven to be decentralized. However, the use of proof of stake altcoins can put your trust in a platform that could have malicious intents or stop your funds from being censored. But using proof-of–stake cryptocurrencies, which are often Ponzi schemes that enrich their founders, is a wasteful practice. They occupy storage space that could be used to store more important data. Bitcoin is money that has a finite supply. This means that the value of a bitcoin can’t be stolen by inflating the supply, as has happened with all fiat currencies and most altcoins. This guest post is by Pierre Gildenhuys. These opinions are not necessarily those of Bitcoin Magazine or BTC Inc.

 

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