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The consensus algorithms used by the two largest cryptocurrencies (Bitcoin and Ethereum) are Proof of Work and Proof of Stake. Here we will detail how they work, why they ensure cryptocurrencies can be secure, and how they impact the environment. | The consensus algorithms used by the two largest cryptocurrencies (Bitcoin and Ethereum) are Proof of Work and Proof of Stake. Here we will detail how they work, why they ensure cryptocurrencies can be secure, and how they impact the environment. | ||
<h2 style="font-size: 24px">Proof of Work</h2> | <h2 style="font-size: 24px">Proof of Work</h2> | ||
| + | The essence of Proof of Work involves users, known as miners, competing to solve cryptographic puzzles in order to verify ledgers of transactions. The user who solves the puzzle first is award newly minted Bitcoin. | ||
| + | |||
| + | The puzzles themselves involve taking the ledgers with a number appended to the end and applying a hashing algorithm, such as SHA256, to it. For those who don't know, a hashing algorithm is one of the most fundamental tools in cryptology. It takes an input string of any length and outputs a fixed length binary string. Furthermore, hashing algorithms have the following properties: The same input will always map to the same output, small changes in the input will have drastic changes in the output, and the security of the operation comes from the fact that you can't compute the inverse efficiently. In other words, given an output, you can't compute the input without checking every possible input until you get a match. | ||
| + | |||
| + | Going back to the cryptographic puzzles of Proof of Work, a ledger and number are combined and hashed. If the 30 leading numbers of the binary output is zero, then the number used is a winning candidate. The probability of finding the right input number is <math>\frac{1}{2^{30}}</math>, equating to almost 1 in a billion. Once a winning number is found, it's broadcasted to the network and verified by other users. | ||
| + | |||
<h3 style="font-size: 20px">Environmental Impact</h3> | <h3 style="font-size: 20px">Environmental Impact</h3> | ||
| + | The "work" portion in proof of work is the billions of hashing operations that miners are computing to find the winning number. | ||
<h3 style="font-size: 20px">Security of Proof of Work Algorithms</h3> | <h3 style="font-size: 20px">Security of Proof of Work Algorithms</h3> | ||
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https://bitcoin.org/bitcoin.pdf<br /> | https://bitcoin.org/bitcoin.pdf<br /> | ||
Bitcoin whitepaper that started it all | Bitcoin whitepaper that started it all | ||
| + | <br /> | ||
| + | https://time.com/nextadvisor/investing/cryptocurrency/proof-of-work-vs-proof-of-stake/<br /> | ||
Revision as of 11:48, 1 November 2022
Contents
Introduction: What is Cryptocurrency?
Proposed Benefits of Cryptocurrency
Environmental Impact of Cryptocurrency
Consensus Algorithms
Consensus Algorithms are the basic underpinning of cryptocurrency. They allow users to agree on who owns the currency without a centralized authority or physical token dictating ownership.
The consensus algorithms used by the two largest cryptocurrencies (Bitcoin and Ethereum) are Proof of Work and Proof of Stake. Here we will detail how they work, why they ensure cryptocurrencies can be secure, and how they impact the environment.
Proof of Work
The essence of Proof of Work involves users, known as miners, competing to solve cryptographic puzzles in order to verify ledgers of transactions. The user who solves the puzzle first is award newly minted Bitcoin.
The puzzles themselves involve taking the ledgers with a number appended to the end and applying a hashing algorithm, such as SHA256, to it. For those who don't know, a hashing algorithm is one of the most fundamental tools in cryptology. It takes an input string of any length and outputs a fixed length binary string. Furthermore, hashing algorithms have the following properties: The same input will always map to the same output, small changes in the input will have drastic changes in the output, and the security of the operation comes from the fact that you can't compute the inverse efficiently. In other words, given an output, you can't compute the input without checking every possible input until you get a match.
Going back to the cryptographic puzzles of Proof of Work, a ledger and number are combined and hashed. If the 30 leading numbers of the binary output is zero, then the number used is a winning candidate. The probability of finding the right input number is $ \frac{1}{2^{30}} $, equating to almost 1 in a billion. Once a winning number is found, it's broadcasted to the network and verified by other users.
Environmental Impact
The "work" portion in proof of work is the billions of hashing operations that miners are computing to find the winning number.
Security of Proof of Work Algorithms
Proof of Stake
Environmental Impact
Security of Proof of Stake Algorithms
Tradeoffs of Proof of Work vs. Proof of Stake
Security Tradeoffs
Different Environmental Impacts
Be sure to have data here on Ethereum energy usage before and after the switch to proof of Stake.
Regulatory Issues
Conclusion
Sources
$ \sqrt{2} $ How to type math https://katex.org/docs/supported.html
Sources
https://ethereum.org/en/developers/docs/consensus-mechanisms/pow/
Information on how proof of work works.
https://ethereum.org/en/developers/docs/consensus-mechanisms/pow/mining/
Information on why mining is important for cryptocurrencies.
https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/
Information on how proof of stake works.
https://www.coinbase.com/learn/crypto-basics/what-is-proof-of-work-or-proof-of-stake
Information on the difference between PoW & PoS
https://bitcoin.org/bitcoin.pdf
Bitcoin whitepaper that started it all
https://time.com/nextadvisor/investing/cryptocurrency/proof-of-work-vs-proof-of-stake/
