"Dear, dear! I
shall be too late!"
It is often said that bitcoins are mined because thousands of
computers work on solving very
complex mathematical problems. Certain problems are to
be solved, and if you compute the right answer, you
“produce” a bitcoin. While this simplified view of
bitcoin mining might be easier to convey, it does miss the point somewhat.
Bitcoins aren’t produced or created, and the whole ordeal is not
really about solving particular math problems. Also, the math
isn’t particularly complex. What is complex
is telling the time in a
decentralized system.
As outlined in the whitepaper, the proof-of-work system (aka
mining) is a way to implement a distributed timestamp server.
When I first learned how Bitcoin works I also thought that
proof-of-work is inefficient and wasteful. After a while, I started
to
my perspective on Bitcoin’s energy consumption. It seems
that proof-of-work is still widely misunderstood today, in the year 13 AB
(after Bitcoin).
Since the problems to be solved in proof-of-work are made up, many
people seem to believe that it
is useless work. If the focus is
purely on the computation, this is an understandable conclusion. But Bitcoin
isn’t about computation. It is
about independently agreeing on the order of
things.
Proof-of-work is a system in which everyone can validate what
happened and in what order it happened. This independent validation is what
leads to consensus, an individual agreement by multiple parties about who
owns what.
In a radically decentralized environment, we don’t have
the luxury of absolute time. Any clock would introduce a trusted third
party, a central point in the system which had to be relied upon and could
be attacked. “Timing is the root problem,” as Grisha
Trubetskoy
out. And Satoshi brilliantly solved this problem by implementing a
decentralized clock via a proof-of-work blockchain. Everyone agrees
beforehand that the chain with the most cumulative work is the source of
truth. It is per definition what actually happened. This agreement is what
is now known as Nakamoto consensus.
“The
network timestamps transactions by hashing them into an ongoing chain which
serves as proof of the sequence of events
witnessed”
Nakamoto
Without a consistent way to tell the time, there is no consistent
way to tell before from after. Reliable ordering is impossible. As mentioned
above, Nakamoto consensus is Bitcoin’s way to consistently tell
the time. The system’s incentive structure produces a
probabilistic, decentralized clock, by utilizing both greed and
self-interest of competing participants. The fact that this clock is
imprecise is irrelevant because the order of events is eventually
unambiguous and can be verified by anyone.
Thanks to proof-of-work, both the
work and the validation of the work
are radically decentralized. Everyone can join and leave at will, and
everyone can validate everything at all times. Not only that, but everyone
can validate the state of the
system individually, without having to rely on
anyone else for validation.
Understanding proof-of-work takes time. It is often
counter-intuitive, and while the rules are simple, they lead to quite
complex phenomena. For me, shifting my perspective on mining helped. Useful,
not useless. Validation, not computation. Time, not blocks.
Bitcoin taught me that telling the time is tricky, especially if
you are decentralized.
Follow-up articles that expand upon ideas discussed in this
lesson:
Bitcoin's Energy Consumption - A shift in
perspective
Bitcoin Is Time
target="_blank" rel="noopener">Nothing is Cheaper
than Proof of Work by Paul Sztorc
target="_blank" rel="noopener">Bitcoin
Doesn’t Waste Electricity by Beautyon
target="_blank" rel="noopener">Blockchain
Proof-of-Work Is a Decentralized Clock by Gregory
Trubetskoy
target="_blank" rel="noopener">The Anatomy of
Proof-of-Work by Hugo Nguyen
target="_blank" rel="noopener">Work is Timeless,
Stake is Not by Hugo Nguyen
target="_blank" rel="noopener">Bitcoin Does Not Waste
Energy by Parker Lewis
target="_blank" rel="noopener">Bitcoin
Astronomy by Dhruv Bansal
target="_blank" rel="noopener">The Last Word on
Bitcoin’s Energy Consumption by Nic
Carter
target="_blank" rel="noopener">Uncovering The Hidden
Costs Of The Petrodollar by Alex Gladstein
target="_blank" rel="noopener">Controlled
Supply by Bitcoin Wiki Contributors
target="_blank"
rel="noopener">Mining by Bitcoin Wiki
Contributors
🎧
Mayer on Bitcoin Valuation, Trust, and Energy Consumption
🎧
Breedlove on Understanding Bitcoin from First Principles
