Proof of work, the mark of the physical world in the digital.
As illustrated in our analysis of the “information universe”, the integration of proof of work into the Bitcoin system is what makes this particular machine unique. Without proof of work being distributed participants lose trust in the system, and that makes Bitcoin far less valuable. In the analysis, we used the analogy of the blockchain residing in a carefully crafted digital universe with deterministic laws of operation that set it apart from all other digital space. In the Bitcoin universe, bits of information represent direct value. To better illustrate why proof of work is crucial, we are going to explain it in terms of a ‘portal’ into the Bitcoin universe (where the blockchain resides) and a ‘gatekeeper’ that allows bits of information into that universe.
The ‘gatekeeper’ is simply a revolving job title retroactively applied to whoever solved the last block. Therefore the chance of being the gatekeeper is the same as the chance of solving a block. So if someone had a majority share of the network power they would be gatekeeper more often than all other network participants combined. This means that they could allow whatever they wanted into the blockchain, and no one else could keep up with the decisions being made (51% attack).
This thought process can be applied to most types of cryptocurrencies. Each has their own ‘portal’ to their own constructed reality, and many share gatekeepers (mixed mining proof of work verification). The gatekeeper is chosen from the network and their specific proof of work. Right now there are only two main networks, SHA256D and SCRYPT. Two gates all proof of work cryptocurrencies must pass through.
If each hash is an entry to the gatekeeper lottery, and the gatekeeper gets to say what reality is, then a hash is a vote for your reality. This is not only for consensus on the blockchain, but consensus on the deterministic laws of the constructed reality in which it resides (the Bitcoin universe). Because the miners decide what is “valid” there has to be majority agreement on any change to the protocol (see deployment requirement for BIP 101). This is exactly the way in which we should reach consensus. So who gets to “vote” on these proposals? People who control hardware. Therefore the power consumed by mining is a form of identity for controlling the Bitcoin blockchain, and voting on how Bitcoin even operates. It is rudimentary, but it allows proportional direct democracy: the only people who can participate in the voting process are those ‘identities’ who can prove that they are contributing to the network via consumption of energy.
We saw in Bitcoin, that when Ghash.io got near 50% people started moving their power to other pools to ensure diversity in agreement. This worked for two reasons: 1) individuals were in control of where their hash power was directed, and 2) individuals were actively participating. Both of these reasons are things we cannot always count on as Bitcoin grows and the mining landscape changes. If we have more participants with preconfigured miners (if mass adoption happens) they will likely not be bothered to move their power away from the default setting (or manufacturers may not allow them). So we need a way to spread around the ‘votes’ of these apathetic miners in an equally distributed way, while still allowing those who want to control their power/vote the ability to put it where they choose (an opt-out). Additionally, if mining continues to centralize and the hardware is controlled by fewer and fewer people, we’ll have no choice but to trust the remaining owners to not have malicious intent — not ideal for a trustless system. Unfortunately, centralized miners have a lot more votes and could influence Bitcoin’s development so as to make the mining environment increasingly advantageous to them as time goes on. The more mining centralizes, the more Bitcoin will come to resemble a consortium blockchain, with a shrinking pool of gatekeepers making all of the decisions.
One could argue that if centralized miners attempted to influence Bitcoin in this way, they would be destroying their own investment, and therefore would not actually do anything to harm the network. That may be true of today’s miners, but we can’t know who the miners may be ten years from now. And even if no miner ever deliberately manipulated the network, what would be the next largest entity that might take an interest in exerting control? A government. If mining is centralized to a few places, it becomes much easier for governments to shut down large portions of the Bitcoin mining network — and even if a government instead decided to co-opt a portion of the network, this both decreases trust in the network overall and sets a dangerous precedent for other governments to follow.
The prospects become worse if the country deciding to declare authority over its miners is the one containing half the mining network, because this could very quickly destroy the global trustlessness of the system. In such a case, the remainder of the network (now less than half as large as before) becomes the ‘true’ currency, but it is now even more vulnerable to a centralized entity gaining majority control. The process repeats if the country housing the next largest share of mining likewise decides to exert its power, causing a cascade effect that ends in an implosion of trustlessness. In such a case, even starting over with a new currency would no longer be a realistic option. A new proof of work algorithm would be needed to invalidate the hardware now owned by the government. But to create a new proof of work algorithm, you would have to begin at the CPU or GPU level. The majority of CPUs and GPUs are in data centers, supercomputers, and government organizations, making it easily conceivable that a government could commandeer and/or overpower any attempts at a new proof of work. And even assuming they left alone any new currency attempts, the damage would be done. They would already have completely destroyed all the value built up and stored in the previous system, not to mention long-term public faith in any future cryptocurrency.
Scenarios such as those above may not be immediate concerns for Bitcoin, but they do illustrate how controlling the proof of work devices is the same as controlling the whole system.
Proof of work will always come to majority consensus, but that majority must be representative of the system's stakeholders to remain meaningful and trustless. With hashing power more evenly distributed we could begin using Bitcoin as a digital identity in that hashing power can't be faked. There are surely ways in which true digital identities could be obtained much more easily, but the important thing to understand here is that digital identity in this context is a sliding scale of spent energy. The more the Proof of Work is distributed, the more individual identities and ‘voters’ the network will have. So how do we make that happen? Read our next post for our attempt at beginning the thermodynamic distribution process of the proof of work.