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Bitcoin’s Proof of Work: A Consensus Mechanism Beneficial to Wealthy and Affluent

When firstly introduced, Bitcoin and the underlying technology blockchain was assessed to be truly groundbreaking, which allowed complete decentralization for the first time in history. It was an innovation brought forth in a time when the reliability of the existing financial system was being acutely scrutinized. As with all new things, a lot of stigmas were attached to Bitcoin at first, but eventually, people started to look at the genius of its design. Blockchain was the component in its design which made it truly remarkable. But as the network expanded, a series of limitations of Bitcoin started to ascend.

In order to approve a transaction on a network, a consensus mechanism or an algorithm was presented in Bitcoins whitepaper. This mechanism was referred to as proof of work. This mechanism dictated that in order to mine a Bitcoin or unlock a block, a computational problem will have to be solved. Upon solving that problem, an individual might be able to unlock a block that would reward Bitcoins as an incentive. But as time passed, the hash rates required to unlock a block increased, hence the computational problems became more complex. These arduous calculations took way more computational power to be solved and cost more as machinery with high computing power is quite expensive. Furthermore, the amount of transactions the network could handle in a second is very low.

Fast forward to today, the machinery that is now being used to mine Bitcoin costs thousands of dollars. This directly implies that a person with limited resources cannot mine Bitcoin. Essentially this becomes an unfair system, where the more resourceful can open up entire mining farms and claim all the Bitcoins, as the greater computation power would ensure a greater chance of getting the reward.

In addition to being an imbalanced system, Proof of Work requires a large number of computational problems to be solved which intake a lot of power. The energy consumption is off the charts, with mining rigs consuming more power than entire countries each year. This, however, is not the worst part. The energy consumption would only grow as long as there remain more Bitcoins to mine. The cost of power combined with the cost of high-speed computer make up quite a hefty amount which can only be afforded by giant companies, which brings us to the net dilemma that exists.

SEE ALSO: Blockchain’s Proof of Work And Proof of Stake Explained

The consensus algorithm only approves the transactions that have been approved by the majority of the active nodes in a network. This brings us to the pre-mentioned dilemma. If a criminal is able to control 51% of the entire network, the network could be very easily breached. There have been instances in which networks following the PoW mechanisms were hacked because of this very shortcoming.

Owing to all these shortcomings it can be concluded, that even though Bitcoin catered to the middleman problem, it would not be right to say that it made the network 100% attack-free or untouchable. There are certain flaws within its consensus mechanism that can be taken advantage of. These problems have been repeatedly identified, and many other consensus algorithms have emerged as well, one of the most popular ones being proof of stake (POS). Due to its feature of being immune to the 51% attack, Ethereum, the second most popular have also turned its eye towards it may migrate to PoS in the near future.

SEE ALSO: An Upgrade to Proof of Stake (PoS) and an Introduction of Block Finality Would Make a 51% Attack Impossible

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Shehryar Hasan

Performing artist, guitarist and sub-editor at BlockPublisher. Shehryar is an electrical engineer and blockchain enthusiast. He holds investments in bitcoin, ethereum, OST, TRX and Ripple. Email: shehryar@blockpublisher.com or contact the editor at editor.news@blockpublisher.com

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