Proof of work

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Proof of work (PoW) is a form of cryptographic proof in which one party (the prover) proves to others (the verifiers) that a certain amount of a specific computational effort has been expended. [1] Verifiers can subsequently confirm this expenditure with minimal effort on their part. The concept was invented by Moni Naor and Cynthia Dwork in 1993 as a way to deter denial-of-service attacks and other service abuses such as spam on a network by requiring some work from a service requester, usually meaning processing time by a computer. The term "proof of work" was first coined and formalized in a 1999 paper by Markus Jakobsson and Ari Juels. [2] [3] The concept was adapted to digital tokens by Hal Finney in 2004 through the idea of "reusable proof of work" using the 160-bit secure hash algorithm 1 (SHA-1). [4] [5]

Contents

Proof of work was later popularized by Bitcoin as a foundation for consensus in a permissionless decentralized network, in which miners compete to append blocks and mine new currency, each miner experiencing a success probability proportional to the computational effort expended. PoW and PoS (proof of stake) remain the two best known Sybil deterrence mechanisms. In the context of cryptocurrencies they are the most common mechanisms. [6]

A key feature of proof-of-work schemes is their asymmetry: the work – the computation – must be moderately hard (yet feasible) on the prover or requester side but easy to check for the verifier or service provider. This idea is also known as a CPU cost function, client puzzle, computational puzzle, or CPU pricing function. Another common feature is built-in incentive-structures that reward allocating computational capacity to the network with value in the form of cryptocurrency. [7] [8]

The purpose of proof-of-work algorithms is not proving that certain work was carried out or that a computational puzzle was "solved", but deterring manipulation of data by establishing large energy and hardware-control requirements to be able to do so. [7] Proof-of-work systems have been criticized by environmentalists for their energy consumption. [9]

Background

One popular system, used in Hashcash, uses partial hash inversions to prove that computation was done, as a goodwill token to send an e-mail. For instance, the following header represents about 252 hash computations to send a message to calvin@comics.net on January 19, 2038:

X-Hashcash: 1:52:380119:calvin@comics.net:::9B760005E92F0DAE

It is verified with a single computation by checking that the SHA-1 hash of the stamp (omit the header name X-Hashcash: including the colon and any amount of whitespace following it up to the digit '1') begins with 52 binary zeros, that is 13 hexadecimal zeros: 

0000000000000756af69e2ffbdb930261873cd71

Whether PoW systems can actually solve a particular denial-of-service issue such as the spam problem is subject to debate; [10] [11] the system must make sending spam emails obtrusively unproductive for the spammer, but should also not prevent legitimate users from sending their messages. In other words, a genuine user should not encounter any difficulties when sending an email, but an email spammer would have to expend a considerable amount of computing power to send out many emails at once. Proof-of-work systems are being used by other, more complex cryptographic systems such as bitcoin, which uses a system similar to Hashcash. [10]

Variants

There are two classes of proof-of-work protocols.

Proof of Work challenge response.svg
Proof of Work solution verification.svg

Known-solution protocols tend to have slightly lower variance than unbounded probabilistic protocols because the variance of a rectangular distribution is lower than the variance of a Poisson distribution (with the same mean).[ further explanation needed ] A generic technique for reducing variance is to use multiple independent sub-challenges, as the average of multiple samples will have a lower variance.

There are also fixed-cost functions such as the time-lock puzzle.

Moreover, the underlying functions used by these schemes may be:

Finally, some PoW systems offer shortcut computations that allow participants who know a secret, typically a private key, to generate cheap PoWs. The rationale is that mailing-list holders may generate stamps for every recipient without incurring a high cost. Whether such a feature is desirable depends on the usage scenario.

List of proof-of-work functions

Here is a list of known proof-of-work functions:

Proof of useful work (PoUW)

At the IACR conference Crypto 2022 researchers presented a paper describing Ofelimos, a blockchain protocol with a consensus mechanism based on "proof of useful work" (PoUW). Rather than miners consuming energy in solving complex, but essentially useless, puzzles to validate transactions, Ofelimos achieves consensus while simultaneously providing a decentralized optimization problem solver. The protocol is built around Doubly Parallel Local Search (DPLS), a local search algorithm that is used as the PoUW component. The paper gives an example that implements a variant of WalkSAT, a local search algorithm to solve Boolean problems. [25]

Bitcoin-type proof of work

In 2009, the Bitcoin network went online. Bitcoin is a proof-of-work digital currency that, like Finney's RPoW, is also based on the Hashcash PoW. But in Bitcoin, double-spend protection is provided by a decentralized P2P protocol for tracking transfers of coins, rather than the hardware trusted computing function used by RPoW. Bitcoin has better trustworthiness because it is protected by computation. Bitcoins are "mined" using the Hashcash proof-of-work function by individual miners and verified by the decentralized nodes in the P2P bitcoin network. The difficulty is periodically adjusted to keep the block time around a target time.[ citation needed ]

Energy consumption

Bitcoin electricity consumption as of 2021 Bitcoin electricity consumption.svg
Bitcoin electricity consumption as of 2021

Since the creation of Bitcoin, proof-of-work has been the predominant design of Peer-to-peer cryptocurrency. Studies have estimated the total energy consumption of cryptocurrency mining. [27] The PoW mechanism requires a vast amount of computing resources, which consume a significant amount of electricity. 2018 estimates from the University of Cambridge equate Bitcoin's energy consumption to that of Switzerland. [6]

History modification

Each block that is added to the blockchain, starting with the block containing a given transaction, is called a confirmation of that transaction. Ideally, merchants and services that receive payment in the cryptocurrency should wait for at least one confirmation to be distributed over the network, before assuming that the payment was done. The more confirmations that the merchant waits for, the more difficult it is for an attacker to successfully reverse the transaction in a blockchain—unless the attacker controls more than half the total network power, in which case it is called a 51% attack. [28]

ASICs and mining pools

Within the Bitcoin community there are groups working together in mining pools. [29] Some miners use application-specific integrated circuits (ASICs) for PoW. [30] This trend toward mining pools and specialized ASICs has made mining some cryptocurrencies economically infeasible for most players without access to the latest ASICs, nearby sources of inexpensive energy, or other special advantages. [31]

Some PoWs claim to be ASIC-resistant, [32] i.e. to limit the efficiency gain that an ASIC can have over commodity hardware, like a GPU, to be well under an order of magnitude. ASIC resistance has the advantage of keeping mining economically feasible on commodity hardware, but also contributes to the corresponding risk that an attacker can briefly rent access to a large amount of unspecialized commodity processing power to launch a 51% attack against a cryptocurrency. [33]

Environmental concerns

These miners compete to solve crypto challenges on the Bitcoin blockchain, and their solutions must be agreed upon by all nodes and reach consensus. The solutions are then used to validate transactions, add blocks and generate new bitcoins. Miners are rewarded for solving these puzzles and successfully adding new blocks. However, the Bitcoin-style mining process is very energy intensive because the proof of work shaped like a lottery mechanism. The underlying computational work has no other use but to provide security to the network that provides open access and has to work in adversarial conditions. Miners have to use a lot of energy to add a new block containing a transaction to the blockchain. The energy used in this competition is what fundamentally gives bitcoin its level of security and resistance to attacks. Also, miners have to invest computer hardwares that need large spaces as fixed cost. [34]

In January 2022 Vice-Chair of the European Securities and Markets Authority Erik Thedéen called on the EU to ban the proof of work model in favor of the proof of stake model due its lower energy emissions. [35]

In November 2022 the state of New York enacted a two-year moratorium on cryptocurrency mining that does not completely use renewable energy as a power source for two years. Existing mining companies will be grandfathered in to continue mining without the use of renewable energy but they will not be allowed to expand or renew permits with the state, no new mining companies that do not completely use renewable energy will not also not be allowed to begin mining. [36]

See also

Notes

Related Research Articles

Hashcash is a proof-of-work system used to limit email spam and denial-of-service attacks. Hashcash was proposed in 1997 by Adam Back and described more formally in Back's 2002 paper "Hashcash - A Denial of Service Counter-Measure". In Hashcash the client has to concatenate a random number with a string several times and hash this new string. It then has to do so over and over until a hash beginning with a certain amount of zeros is found.

<span class="mw-page-title-main">Cryptographic nonce</span> Concept in cryptography

In cryptography, a nonce is an arbitrary number that can be used just once in a cryptographic communication. It is often a random or pseudo-random number issued in an authentication protocol to ensure that old communications cannot be reused in replay attacks. They can also be useful as initialization vectors and in cryptographic hash functions.

<span class="mw-page-title-main">Client Puzzle Protocol</span>

Client Puzzle Protocol (CPP) is a computer algorithm for use in Internet communication, whose goal is to make abuse of server resources infeasible. It is an implementation of a proof-of-work system (PoW).

<span class="mw-page-title-main">Adam Back</span> British cryptographer and cypherpunk (born 1970)

Adam Back is a British cryptographer and cypherpunk. He is the CEO of Blockstream, which he co-founded in 2014. He invented Hashcash, which is used in the Bitcoin mining process.

Trusted timestamping is the process of securely keeping track of the creation and modification time of a document. Security here means that no one—not even the owner of the document—should be able to change it once it has been recorded provided that the timestamper's integrity is never compromised.

Double-spending is a monetary design problem, a good money is verifiably scarce and where a unit of value can be spent more than once, the monetary property of scarcity is challenged. As with counterfeit money, such double-spending leads to inflation by creating a new amount of copied currency that did not previously exist. Like all increasingly abundant resources, this devalues the currency relative to other monetary units or goods and diminishes user trust as well as the circulation and retention of the currency.

<span class="mw-page-title-main">Bitcoin</span> Decentralized digital currency

Bitcoin is the first decentralized cryptocurrency. Nodes in the peer-to-peer bitcoin network verify transactions through cryptography and record them in a public distributed ledger, called a blockchain, without central oversight. Consensus between nodes is achieved using a computationally intensive process based on proof of work, called mining, that guarantees the security of the bitcoin blockchain. Mining consumes increasing quantities of electricity and has been criticized for its environmental effects.

<span class="mw-page-title-main">Cryptocurrency</span> Digital currency not reliant on a central authority

A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

<span class="mw-page-title-main">Bitcoin protocol</span> Rules that govern the functioning of Bitcoin

The Bitcoin protocol is the set of rules that govern the functioning of Bitcoin. Its key components and principles are: a peer-to-peer decentralized network with no central oversight; the blockchain technology, a public ledger that records all Bitcoin transactions; mining and proof of work, the process to create new bitcoins and verify transactions; and cryptographic security.

Zerocoin is a privacy protocol proposed in 2013 by Johns Hopkins University professor Matthew D. Green and his graduate students, Ian Miers and Christina Garman. It was designed as an extension to the Bitcoin protocol that would improve Bitcoin transactions' anonymity by having coin-mixing capabilities natively built into the protocol. Zerocoin is not currently compatible with Bitcoin.

Proof-of-stake (PoS) protocols are a class of consensus mechanisms for blockchains that work by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency. This is done to avoid the computational cost of proof-of-work (POW) schemes. The first functioning use of PoS for cryptocurrency was Peercoin in 2012, although the scheme, on the surface, still resembled a POW.

In the context of cryptocurrency mining, a mining pool is the pooling of resources by miners, who share their processing power over a network, to split the reward equally, according to the amount of work they contributed to the probability of finding a block. A "share" is awarded to members of the mining pool who present a valid partial proof-of-work. Mining in pools began when the difficulty for mining increased to the point where it could take centuries for slower miners to generate a block. The solution to this problem was for miners to pool their resources so they could generate blocks more quickly and therefore receive a portion of the block reward on a consistent basis, rather than randomly once every few years.

A blockchain is a distributed ledger with growing lists of records (blocks) that are securely linked together via cryptographic hashes. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Since each block contains information about the previous block, they effectively form a chain, with each additional block linking to the ones before it. Consequently, blockchain transactions are irreversible in that, once they are recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks.

Monero is a cryptocurrency which uses a blockchain with privacy-enhancing technologies to obfuscate transactions to achieve anonymity and fungibility. Observers cannot decipher addresses trading Monero, transaction amounts, address balances, or transaction histories.

Proof of space (PoS) is a type of consensus algorithm achieved by demonstrating one's legitimate interest in a service by allocating a non-trivial amount of memory or disk space to solve a challenge presented by the service provider. The concept was formulated in 2013 by Dziembowski et al. and by Ateniese et al.. Proofs of space are very similar to proofs of work (PoW), except that instead of computation, storage is used to earn cryptocurrency. Proof-of-space is different from memory-hard functions in that the bottleneck is not in the number of memory access events, but in the amount of memory required.

<span class="mw-page-title-main">Firo (cryptocurrency)</span> Cryptocurrency

Firo, formerly known as Zcoin, is a cryptocurrency aimed at using cryptography to provide better privacy for its users compared to other cryptocurrencies such as Bitcoin.

Equihash is a memory-hard Proof-of-work algorithm introduced by the University of Luxembourg's Interdisciplinary Centre for Security, Reliability and Trust (SnT) at the 2016 Network and Distributed System Security Symposium. The algorithm is based on a generalization of the Birthday problem which finds colliding hash values. It has severe time-space trade-offs but concedes vulnerability to unforeseen parallel optimizations. It was designed such that parallel implementations are bottle-necked by memory bandwidth in an attempt to worsen the cost-performance trade-offs of designing custom ASIC implementations. ASIC resistance in Equihash is based on the assumption that commercially-sold hardware already has quite high memory bandwidth, so improvements made by custom hardware may not be worth the development cost.

In cryptography, a memory-hard function (MHF) is a function that costs a significant amount of memory to efficiently evaluate. It differs from a memory-bound function, which incurs cost by slowing down computation through memory latency. MHFs have found use in key stretching and proof of work as their increased memory requirements significantly reduce the computational efficiency advantage of custom hardware over general-purpose hardware compared to non-MHFs.

Nervos Network is a proof-of-work blockchain platform which consists of multiple blockchain layers that are designed for different functions. The native cryptocurrency of this layer is called CKB. Smart contracts and decentralized applications can be deployed on the Nervos blockchain. The Nervos Network was founded in 2018.

GPU mining is the use of Graphics Processing Units (GPUs) to "mine" proof-of-work cryptocurrencies, such as Bitcoin. Miners receive rewards for performing computationally intensive work, such as calculating hashes, that amend and verify transactions on an open and decentralized ledger. GPUs can be especially performant at calculating such hashes.

References

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  2. 1 2 Jakobsson, Markus; Juels, Ari (1999). "Proofs of Work and Bread Pudding Protocols". Secure Information Networks: Communications and Multimedia Security. Kluwer Academic Publishers: 258–272. doi: 10.1007/978-0-387-35568-9_18 .
  3. 1 2 3 4 Dwork, Cynthia; Naor, Moni (1993). "Pricing via Processing or Combatting Junk Mail". Advances in Cryptology — CRYPTO' 92. Lecture Notes in Computer Science. Vol. 740. Springer. pp. 139–147. doi: 10.1007/3-540-48071-4_10 . ISBN   978-3-540-57340-1. Archived from the original on 2017-11-26. Retrieved 2012-09-10.
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  5. ↑ "What Is Proof of Work (PoW) in Blockchain?". Investopedia. Archived from the original on 2024-01-17. Retrieved 2024-01-17.
  6. 1 2 "Cryptocurrencies and blockchain" (PDF). European Parliament . July 2018. Archived (PDF) from the original on 27 June 2023. Retrieved 29 October 2020. the two best-known – and in the context of cryptocurrencies also most commonly used
  7. 1 2 "Proof of Work Explained in Simple Terms - The Chain Bulletin". chainbulletin.com. Archived from the original on 2023-04-01. Retrieved 2023-04-01.
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  9. ↑ Kharif, Olga (November 30, 2021). "Analysis | Bye-Bye, Miners! How Ethereum's Big Change Will Work". The Washington Post . Bloomberg News. Archived from the original on 2 December 2021. Retrieved 13 January 2022.
  10. 1 2 Laurie, Ben; Clayton, Richard (May 2004). "Proof-of-work proves not to work". Workshop on the Economics of Information Security 2004.
  11. ↑ Liu, Debin; Camp, L. Jean (June 2006). "Proof of Work can work - Fifth Workshop on the Economics of Information Security". Archived from the original on 2017-08-20. Retrieved 2015-12-29.
  12. ↑ How powerful was the Apollo 11 computer?, a specific comparison that shows how different classes of devices have different processing power.
  13. 1 2 Abadi, Martín; Burrows, Mike; Manasse, Mark; Wobber, Ted (2005). "Moderately hard, memory-bound functions". 5 (2): 299–327.{{cite journal}}: Cite journal requires |journal= (help)
  14. 1 2 Dwork, Cynthia; Goldberg, Andrew; Naor, Moni (2003). "On Memory-Bound Functions for Fighting Spam". Advances in Cryptology - CRYPTO 2003. Lecture Notes in Computer Science. Vol. 2729. Springer. pp. 426–444. doi: 10.1007/978-3-540-45146-4_25 . ISBN   978-3-540-40674-7.
  15. 1 2 Coelho, Fabien (2005). "Exponential memory-bound functions for proof of work protocols". Cryptology ePrint Archive, Report. Archived from the original on 2018-04-09. Retrieved 2007-11-04.
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  18. ↑ Back, Adam. "HashCash". Archived from the original on 2017-09-29. Retrieved 2005-03-02. A popular PoW system. First announced in March 1997.
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  22. ↑ Juels, Ari; Brainard, John (1999). "Client puzzles: A cryptographic defense against connection depletion attacks". NDSS 99.
  23. ↑ Waters, Brent; Juels, Ari; Halderman, John A.; Felten, Edward W. (2004). "New client puzzle outsourcing techniques for DoS resistance" (PDF). 11th ACM Conference on Computer and Communications Security. Archived (PDF) from the original on 2021-04-21. Retrieved 2019-08-06.
  24. ↑ Coelho, Fabien (2007). "An (almost) constant-effort solution-verification proof-of-work protocol based on Merkle trees". Cryptology ePrint Archive, Report. Archived from the original on 2016-08-26. Retrieved 2007-11-25.
  25. ↑ Fitzi, Matthias. "Combinatorial Optimization via Proof-of-Useful-Work" (PDF). IACR conference Crypto 2022. Archived (PDF) from the original on 9 September 2022. Retrieved 9 September 2022.
  26. ↑ "Cambridge Bitcoin Electricity Consumption Index (CBECI)". www.cbeci.org. Archived from the original on 2020-03-02. Retrieved 2020-02-20.
  27. ↑ "Cambridge Bitcoin Electricity Consumption Index". Cambridge Center For Alternative Finance. Archived from the original on 29 September 2020. Retrieved 30 September 2020.
  28. ↑ Michael J. Casey; Paul Vigna (16 June 2014). "Short-Term Fixes To Avert "51% Attack"". Money Beat. Wall Street Journal. Archived from the original on 15 August 2020. Retrieved 30 June 2014.
  29. ↑ Overview of the Bitcoin mining pools Archived 2020-04-21 at the Wayback Machine on blockchain.info
  30. ↑ What is an ASIC miner Archived 2018-05-22 at the Wayback Machine on digitaltrends.com
  31. ↑ Vorick, David (13 May 2018). "The State of Cryptocurrency Mining". Archived from the original on 10 March 2020. Retrieved 28 October 2020.
  32. ↑ tevador/RandomX: Proof of work algorithm based on random code execution Archived 2021-09-01 at the Wayback Machine on Github
  33. ↑ Savva Shanaev; Arina Shuraeva; Mikhail Vasenin; Maksim Kuznetsov (2019). "Cryptocurrency Value and 51% Attacks: Evidence from Event Studies". The Journal of Alternative Investments. 22 (3): 65–77. doi:10.3905/jai.2019.1.081. S2CID   211422987. Archived from the original on 2021-02-06. Retrieved 2020-10-28.
  34. ↑ Ciaian, Pavel; Kancs, d’Artis; Rajcaniova, Miroslava (2021-10-21). "The economic dependency of bitcoin security". Applied Economics. 53 (49): 5738–5755. doi: 10.1080/00036846.2021.1931003 . hdl: 10419/251105 . ISSN   0003-6846. S2CID   231942439.
  35. ↑ Bateman, Tom (2022-01-19). "Ban proof of work crypto mining to save energy, EU regulator says". euronews. Archived from the original on 2022-04-19. Retrieved 2022-01-22.
  36. ↑ Sigalos, MacKenzie (23 November 2022). "New York governor signs first-of-its-kind law cracking down on bitcoin mining — here's everything that's in it". CNBC. Archived from the original on 2022-12-03. Retrieved 2022-12-04.
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