Proof of Work.
What is it and why it matters in plain language.
Proof of Work or (PoW) is the method by which most cryptocurrencies are distributed, actually Proof of work is a multiple use aspect of the cryptocurrency protocol as it is used as both; a system to distribute units of currency randomly and; also incorporates the means by which the cryptocurrency network is secured.
Today in this article we will focus only on what proof of work is and the socioeconomic implications of its random nature.
As the name suggests , Proof of Work is the principal that work has been done, how this is achieved is really quite simple and generally elegant.
The best and most simple way to explain this is with a simple game:
But first a word on what a “Block” is and what the “Block-chain” is.
What is a Block and what is the Block-Chain also Why new Blocks?
The block-chain is the “decentralized ledger” of the cryptocurrency system, basically explained similar to the ledger in your bank, every transaction that has existed from the cryptocurrency is recorded in this ledger, and no transaction can happen without this block-chain gaining new blocks of encryption, so it is basically a long list of blocks of encryption that records in it all the transactions of the crypto currency right back to the the first one ever made, and right up until the one that is being created that very second.
if you want to visualize that you could think if a train with carriages front to back or more accurate a stack of blocks similar to a simplified version of a jenga game, stacked from bottom to top, the first block is at the bottom and is at the start of the cryptocurrency life and it gets ever higher, in fact you will hear the term “Block height” and all this means is how high is the block-chain “Jenga” game if you like.
if Bill wants to send Bob X units of Crypto currency the Crypto ledger has to process new blocks on the end of the growing block-chain (on the top) for that to happen, so if no new blocks are generated no more transactions will go though, (and the whole system will freeze) when you see a transaction occur, you are also witnessing new blocks get added to the Block-chain (at the top, Bills transaction to Bob will be packaged in these new blocks and processed.)
When people talk about a confirmation time of blocks – all that they are saying is “how many new blocks on top of the one that Bills and Bobs transaction was in have occurred” so if it was Six(6) confirmations, that means 6 new blocks went on top of the “jenga game” – and Bills and Bobs transaction is buried Six(6) blocks deep into the ever growing game.
Now lets zoom in on how a single block is made..
How does the simple game work?
So lets choose Ten(10) players (for simplicity) and lets stick with the “Jenga” theme because it is simple and elegant, our ten (10) players are just simply stacking mini blocks of wood.
Our ten (10) people / players are standing in a circle and in the center each is laying a mini block of wood on a stack (this is essentially the work)
They are randomly picking up a mini block of wood and laying it on the stack, the process is completely random, so that is to say they do not stack these mini blocks in any particular order but randomly take turns, but then when the stack gets to a certain height, the work for that session is done.
And this could be considered a completed block, each piece of mini block of wood is signed by the player that stacks it, so just think they have a marker and each player signs the top of the wood then puts it down on the growing stack.
when the mini blocks get to a certain random height the game is finished and set aside in the growing chain of games.
Is there a winner? and How to find a winner ?
Indeed there is a winner in fact the important thing is to find a winner, the last person to put the last mini block on at the correct random height gets the reward and wins that game.
this can be called the “block reward”.
as each player signed every mini block of the game the winner is declared by seeing the signature of the last mini block at the correct random height of that mini block stacking session (that game), this is the “Proof” that he/she won this game and that work was done.
Each game (block) has a reward (block reward), and each winner gets the reward by signing the winning block, then they receive the reward.
Once that game (block) is completed, and there is a winner (that received the block reward) that game (block) is moved to the side in order of sequence and new game (block) is started by our ten (10) people, then the process starts again until we have another winner and he/she signs the winning mini block and gets the reward for the whole game etc.
No one in the circle can essentially know where the other is in the stack of mini blocks, so they can’t rig the system, its essentially completely random, but there is a clear winner, the one that puts on the last block at the correct height and he/she signs his/her name on the last mini block, to receive the reward (block reward)
Everyone done some work stacking these mini blocks and in a random way someone that was working was chosen as a winner and rewarded with the win by signing the last mini block at the correct height to prove they won.
This is essentially how Proof of Work (PoW) is completed, our stack of wooden mini blocks is the completed game or “block” in the block-chain it is recorded forever inside the growing sets of stacks (each game), and who won that block (game) is recorded forever in that set because in our scenario the winner out of our ten (10) people signs his or her name on the block of wood that is then set aside in the sequence of games.
This is essentially the “Proof of Work” or (PoW).
What do you need to know about the socioeconomic implications of Random Proof of Work.
you will notice that in our game described above, that the winner is essentially completely random, and this is the important socioeconomic implication here.
that process needs to be completely random so that the issuance and therefore the distribution (all other things being equal) can be randomized, so when we think of the reward as a currency, the issuance has to try to be as random as possible, so that anyone playing has an equal chance to get the reward.
although it is an imperfect way to distribute currency or money (initially) it is the best free market way that is known, today, by humans.
In a debt money system currency is created exclusively though debt, when currency in its better use neutral setting (in a perfect equilibrium) should be issued and distributed equally as possible, as “currency” has no inherent value except for the energy attached to it. you could say currency is just an “energy token”, in that it is a representation of human energy.
Currency as energy? What? have you gone all Zen on me Kolin?
lets explain that because it sometimes sounds a little bit strange to say “someone is stealing my energy”, (but in a Debt money issued system, someone entity actually is)
Currency is exchanged for “Goods and services” generally, agree?
lets examine what “Goods and Services” are;
goods are simply packaged energy otherwise they would not exist, if you have a car there was a fair amount of energy that was used to produce that car, this “durable good” has human and robotic energy that was used to make it, simple right ?
take the robotic energy back to the power use by the robot and that power was generated by humans somewhere maintaining a power generator, coal or other sources were used to generate it and these all used human activity.
so you give over an “energy token” (currency) that you stored your work (energy) in and get the “durable good” (car) that is “packaged energy.”
Even more obviously, a service is moving energy, someone is doing something for someone else and is willing to use their energy to do that, in exchange for an “energy token” (currency) that they can spend later.
notice that the token is only as valuable as the energy that would be done for it at that time. (all things being equal)
Back to the point:
if we humans can issue our own “Energy Tokens” debt free , thus keeping the full amount of our energy, we really need that process to try to be as random as possible, otherwise we need to have a Government (or corporation or some other entity) to take over the process and publicly make sure that the issuance is essentially distributed equally to all.
As most or all human governments are either weak, ignorant or corrupt (in no particular order) at this time to take on this relatively simple process, and therefore can not take the simple responsibility to issue these tokens, humans have found a way to issue them themselves. (finally)
And as issuance is the most important factor, in the process, (you will have to trust me on that for now) it has to be as random as possible , so this random “Proof of Work” system is a very important factor, in issuing our own energy tokens, debt free.
(because our weak supposed representative governments can not do this) , and Banks (the owners of governments) have taken over the process, added Debt to it at the issuance, and is essentially stealing productive energy (where those tokens are accepted)
The other point is decentralization, this process has to be this way to work in a decentralized environment as there always needs to be enough “Energy Tokens” (currency) to meet the needs of the energy of the humans using them, for good or services, so there should always be new tokens issued to replace lost tokens or to account for simple population growth, and its best that this new issuance always be as random as possible also.
This all is a factor for “Neutral Control”, that is to say that no Government or Bank (or any other single entity) could control that issuance either at the start or ongoing.
Summary of Random Proof of Work
So this hopefully explains how proof of work is achieved by the signing of the last mini block in the game which is the representation of a Block of the Block-chain.
this also hopefully explains how the winning player randomly puts the winning mini block on (at the correct random height), and how the process of block reward issuance is randomized. (the winner is random)