The Power of Proof of Work
When Satoshi Nakamoto designed Bitcoin, he needed an algorithm to validate transactions and secure the network without a centralized intermediary. Ultimately, Satoshi decided on Proof of Work, a system that leverages effort in the form of physical energy expenditure to deter malicious uses of computing power to disrupt the network.
When transactions are made on the Bitcoin Network, they are verified by nodes (to avoid double-spending) and grouped into a block. The proof of work algorithm then applies a hashing function to the block. Hashing takes an input of letters and numbers and irreversibly encrypts them into an output of fixed length using a mathematical formula. The output is publicly visible, but the input is hidden. Miners then race to discover the input to generate a target output associated with the hashing output. The miner that first succeeds in solving this puzzle gets to add that block to Bitcoin’s blockchain. Since it is far cheaper to verify the solution to the hashing algorithm than to be the first to solve it, other nodes can easily keep miners in check. Thus, only truthful miners earn the Bitcoin-denominated reward from newly minted coins or transaction fees.
In order to power the hardware used to successfully solve hashing algorithms to mine blocks, miners must expend high amounts of energy known as hashpower. The provable use of this power is the Proof of Work needed to ensure skin in the game when creating the blockchain ledger. Committing fraudulent transactions is just a waste of highly valuable energy as solving the mathematical, proof-of-work puzzle yields only expenses. For a more detailed explanation of Proof of Work, please read Satoshi Nakamoto’s original Bitcoin White Paper.
Joining of Two Worlds
From a philosophical perspective, Proof of Work ensures a link between two worlds by introducing the scarcity of the physical world to the heretofore exclusively abundant digital world. The digital, mathematical incentives of the Bitcoin Network are paired with real-world physics. Thus, Bitcoin is forever grounded and connected to the ultimate layer one: physical reality.
Bitcoin does not run the risk of becoming abstracted from grounded reality. While all digital systems on blockchain rails are open-source and transparent, some of the connections to the physical world can be quite opaque. With strictly digital-native consensus mechanisms like PoS, it can be difficult to proactively identify the centralization of the levers controlling consensus. By linking consensus to the physical world, Bitcoin benefits from physically verifiable decentralization.
The Decentralization Gold Standard
Radically countering existing centralized systems, Bitcoin enables anyone to participate in consensus activities by contributing their computing power. At the very least, any entity can run a full node to ensure miners aren’t misbehaving. Since energy is fairly accessible and commoditized, the barriers to entry are fairly low. Over time, the Bitcoin Network could become even more accessible as the network grows. If Bitcoin mining hardware becomes more commoditized and the energy needed to form a malicious majority becomes increasingly insurmountable, the network can become even more decentralized and secure over time.
Proof of Challenges
As illustrated in posts like Core Blockchain Origin, Proof of Work optimizes for decentralization, but at the expense of scalability. Other posts expounded on how Ethereum has filled in many of those gaps particularly with its EVM and transition to Proof of Stake. However, The Merge is Here we outlined some concerns regarding the Merge and its role in the broader trend of blockchains shifting away from decentralization. Now that the Merge is complete, many of those concerns are already being validated. As feared, a significant portion of staked ETH in the early goings was coming from centralized entities like Coinbase and Kraken, while another significant portion was from partially centralized entities like Lido.
Believers in PoS and critics of PoW may point to Bitcoin’s hash power distribution being mostly in the hands of large, fairly centralized mining pools. Surely, this is not ideal, but it is also not nearly as concerning as the centralization occurring on Proof of Stake blockchains. The mining pools are not controlling their entire portion of hashrate. Bitcoin miners can reroute their hashrate at the drop of a hat. Mining pools are merely commoditized service providers meant to combine the resources of many miners to increase the probability of finding a block and distributing rewards. If a pool were centralizing or otherwise misbehaving, miners can immediately switch to another pool. Dissimilar to mining pools, post-Merge ETH is locked and cannot be moved, which significantly diminishes the power of the “true token owners” to combat misbehavior.
Centralized custodians have custody of the tokens that are used to validate Proof of Stake networks. If this centralization intensifies, those in control can cause great harm to the network. Although this is not necessarily life-threatening right now, this problem could get significantly worse over time. As more non-blockchain native people join the blockchain world, they will likely defer custody and governance to centralized entities. After all, as H.L. Mencken said, “The average man does not want to be free. He simply wants to be safe.” Self-custody may offer freedom, but centralized custodians offer safety.
Parallel Proofs
So as not to confuse the message, Ethereum is doing what it should be doing. Proof of Stake is an incredible breakthrough, which is why a modified form of it has been incorporated into Satoshi Plus consensus. Core’s chosen form of PoS is Delegated Proof of Stake because it enables CORE holders to re-route their stake similar to Bitcoin’s mining pools.
With Bitcoin and Ethereum in the places they are, there’s no good reason why they should be at war with each other. Such a conclusion is not due to their similarities, but rather their differences. They share a common ethos, but that isn’t why they should be friendly. They should be comfortable with each other because they are so different. Bitcoin is designed to be the unchanging, consistent platonic ideal hard monetary asset. Ethereum is designed to be a virtual computer network for decentralized, yet scalable products and services. Although less decentralized than Bitcoin, it is not like the disastrously coercive centralized entities that preceded it. Ethereum is an opt-in network providing users optionality to build with an ethos of digital-nativity, self-sovereignty, and decentralization. The crypto world is better off with Bitcoin and Ethereum working simultaneously.
Although Bitcoin and Ethereum operate in parallel, the disconnect between the two is too wide for comfort. Another parallel alternative is needed to bridge the gap. Nevertheless, skepticism directed at new chains is warranted with many new projects capitalizing on the trend towards scalability at all costs. Many projects are not as pure as Bitcoin and Ethereum, especially at launch with the prioritization of initial investors and other centralized groups at the expense of the distributed users of the network. For a new blockchain to truly fulfill the needs of the current crypto landscape, it must effectively bridge the gap between Bitcoin and Ethereum without the sacrifices associated with other chains.
Core Proof
Core’s relationship with Proof of Work is a differentiating factor. While most other projects prefer to dismiss it as more or less a useful relic of the past, Core views it as an instantiation of blockchain first principles. That is why Satoshi Plus consensus relies on Bitcoin miners’ hash power to decentralize the Core network. BTC PoW is Core’s anchor. And the relationship between Core and Bitcoin is symbiotic. Bitcoin miners forfeit nothing when contributing to the Core network and actually have lots to gain as they are rewarded for securing the chain. In 2040, when the final Bitcoin is mined, Core will still be there, providing additional rewards and incentives to miners. With Core’s design, implementation, and philosophy, the entire crypto ecosystem will be the beneficiary.
