Bitcoin course for beginners 2 - 09/11
What is proof-of-Work?
Proof-of-Work (PoW) is a set of actions that require a reasonable amount of computer effort to deter malevolent and unnecessary use of computer power. Hashcash, invented by Adam Back is the ancestor of PoW and was created to fight spamming and denial of service attacks in the 1990s.
The technology was subsequently used by Hal Finney in 2004 to secure cryptocurrency transactions (encrypted with SHA-256 hashing algorithm).
We say that PoW is a decentralized consensus mechanism. The concept of “consensus” is easy to grasp when you think of everyday life activities. Imagine a basketball team. To play and win, every single player/actor must follow a set of rules, and everyone must follow them as a team.
If they succeed, they reach a consensus. In crypto, you can apply the same logic.
Bitcoin consensus mechanism put together actors which can’t be trusted unless they solve a mathematical puzzle to prevent anyone hacking the system. As described previously, Proof-of-work (PoW) is one of the most secure consensuses in the ecosystem. At scale, it requires huge amounts of electricity as the puzzles that must be resolved need massive computer power.
Electricity consumption (More about it in further lessons) and network security increase as more miners join the network. PoW is an incredible tool against hackers as it makes it very difficult to alter the basic features of the blockchain, since any alteration in transactions would require spending as much energy which was used to mine every block. Thanks to PoW, a new block is added to the blockchain every 10 minutes (on average).
Why is proof-of-Work needed?
In a nutshell, bitcoin’s blockchain uses PoW to prevent rogue players from creating extra coins using the double-spending trick. If anyone could spend their coins more than once, bitcoin would be worthless. This the true meaning of a decentralized, distributed, peer-to-peer network.
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