Blockchain: A Beginner's Guide To Understanding And Mastering Of Blockchain (FinTech, Bitcoin, Cryptocurrencies, Future Of Money, Data) by Eliot Reznor

Author:Eliot Reznor
Language: eng
Format: azw3
Publisher: EPR Publishing
Published: 2017-07-15T07:00:00+00:00

Bitcoin Paper Broken Down Step-by-step: Proof of Work Explained

The problem we had so far is we have a way to identify the current and previous owners of a coin but we have now way of knowing whether or not they have double-spent that coin. The solution to this is to have just this massive timestamp server/ ledger that literally logs everything.

And then everyone is made aware of this through broadcasting it to each other and the longest version of this is the accepted one, as it is, you know, the longest one is the newest and also will be the one that supported by the most CPU power/ nodes in the network.

So, with the solution, how do we stop people from actually just editing that log and then passing it along.

This is where Proof-of-Work comes in.

Now let’s go ahead and begin with the first paragraph.

“To implement a distributed timestamp server on peer-to-peer basis, we will need to use a proof-of-work system similar to Adam Back’s Hashcash rather than newspaper or Usenet post.

The proof-of-work involves scanning for a value that when hashed such as with SHA-256, the hash begins with a number of zero (0) bits. The average work required is exponential in the number of zero (0) bits required and can be verified by executing a single hash.”

-Bitcoin Paper

So let’s discuss what Hashcash is because it is almost identical to what Bitcoin uses. Hashcash is the solution to the problem most typically of either eMail Spam or Distributed Denial of Service (DDoS) attacks. It is basically the solution to a problem of the attack against a system by making a lot of requests being sent by the attacker.

The name’s intention, Hashcash, is to literally convey the idea that it uses hashing to introduce a sort of “charge” for something. So the issue is that, with spam filters, generally spam filters catch non-spam emails in their nets and the result of legitimate emails. In a sense, this is similar to seeing an unavoidable amount of fraud as just being part of the system.

What Hashcash does is introduce a CPU or a processing cost to engage something. Again, this was mostly used in email or in DDoS attacks. For example, when an email is sent, it must first solve a problem, which costs a bit of CPU. For the typical user, the difference is absolutely tiny and they probably don’t notice that it is being done.

But to a spammer, the difference is massively compounded, since the spammer might be able to natively send, let’s say, 10,000 emails a minute.

Now, with Hashcash, this becomes near impossible without extremely using a high-powered CPU. By that same token, while the puzzle is challenging and at the same time quite costly to the computer that’s being asked to solve the puzzle, the puzzle needs to also be very quick to verify using the server.

Generally, Hashcash uses SHA-1, where Bitcoin uses SHA-256. The only reason for this is because SHA-2 wasn’t out yet when the time Hashcash was developed.

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