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Blog Posts (17)
- Your questions answered: Proof of Work
Some of the below is based on Ethereum official documentation, as this is applicable to many others, and the documentation is well kept by a large community. Besides, Ethereum is so far the second largest crypto. In this post, you'll find answers to common and not-so-common questions about Proof of Work (PoW). If you missed them, we recommend you to read first our posts about PoW and Consesus Mechanisms. The good, the bad, and the ugly about PoW Let us start by posing an overall idea of what PoW implies. The good: You don’t need a lot of ETH -Ethereum currency- to get started. You “just” need the hardware to mine coins. It’s a well-tested mechanism. Has been around since the beginning of cryptocurrency, and is not too complicated to implement. The bad: Nowadays you can’t mine with your usual desktop/laptop computer, but rather with a highly specialised machine. This issue created a new business: now companies with expensive equipment are the ones doing most of the mining. Because of the above, we now see an issue that goes absolutely against the decentralisation promised by cryptocurrency: that the companies running large pools of mining could dominate the crypto market, holding much power in their hands. The ugly: It’s very expensive in terms of energy consumption, thus, is bad for the environment. In addition, one of the rules of PoW is that Difficulty to generate a new coin is proportional to the number of miners and the number of blocks generated. This means every time becomes more difficult the mining of new coins. So, we can assume the energy consumption will continue increasing with time. Really ugly, isn't? With the above features, let's jump into some questions that are floating around. What would happen if a group would want to corrupt the blockchain? An option could be to create a second blockchain, copy of the original, and add fake blocks. Then the miner should solve blocks faster than anyone else (faster than the rest of the world’s entire group of miners). To do so, you’ll need 51% or more of the total global mining power. This would be tremendously expensive, with the reward being smaller than the cost of such an endeavour. Why miners buy expensive hardware to participate on Proof of Work? Well, maybe, if you have deep pockets you’ll do it just because you can buy the mining rigs with your "pocket money". But for many (if not all) the reason is one: it is profitable. Miners who “discover” new blocks (by computing a valid Nonce) are rewarded in 2 new ETH plus all the transaction fees (gas) within the block. Also, if 2 miners simultaneously solve the same block, the second miner gets 1.75 ETH. Not a bad deal. Let’s be pessimistic for a moment: What would happen if 2 or more miners solve the same block, at the same time, but some of the solutions are not valid? Copies of the solved blocks (plus the blockchain) are kept for evaluation. After checking, the valid block (it’s unique, even when is duplicated) is kept, and the failed are discarded. The blockchain is updated to the successful branch of blocks. The usual time it takes to make sure a block is fully validated is about 1 minute or 6 blocks, depending on the status of mining. Hope you liked this post, maybe now you'll have more material for an icebreaker. Now you're deeper into crypto, don't miss our next post on Proof of Stake. You'll be surprised!
- Grab your popcorn: The biggest heist on DeFi history
We often talk about the novelty of crypto, and how this is a new development with new advantages and challenges. In this post, we will show you an easy-to-understand example of it. We will talk about a hack that happened on Tuesday 10 August 2021 and had the crypto world at the edge of their seats. First, we have to explain a few things: Poly Network is a DeFi project which connects and allows the exchange of coins between different blockchains. Poly Network works in different Blockchains, among them: Ethereum, Binance, and Polygon. What happened It all started when Poly Network announced on Twitter that was under attack on the Binance, Ethereum, and Polygon blockchains, and published the IP addresses of the attacker on the same thread. Then, in a series of tweets, they started calling all miners who work on the affected blockchains, and all the exchanges to blacklist the token coming from the attacker’s IP. As this is being announced on Twitter, the news spreader quickly. Immediately the crypto community started to comment and to share news about the published IP addresses. ‘The address is rich. Just look at it’ said one user. This is the novelty of crypto: an attack was unfolding, with a hacker stealing $600 million, and everyone was able to see it in real-time. This is a new kind of heist, which is public (anyone can see the transactions) and with publicity (dealt with on social media). This has no parallel outside the crypto world unless we talk about a movie. As we have said before, crypto is not regulated by a specific financial or governmental institution. The whole point of its creation was decentralisation and work outside the regular financial system. This is a great idea that is still developing. Unfortunately, there are unforeseen consequences. Let’s think about this heist as an example: who or which institution/authority should intervene if any? Should Poly Network have called the police? (If so, in which country?) Soon after the first tweets, wallets and exchanges, small and big (like Binance) started to reply announcing the display of their security teams to help. Tether froze the equivalent to $33 million worth of its currency as a response to the attack. About 3 hours after their first announcement, Poly Network released a letter trying to establish communication with the hacker. Despite the “Dear Hacker” heading that makes it feel like an everyday communication, this was a serious issue: at this point, the hacker was holding about $600 worth of coins, which belonged to ordinary people. Aftermath Two things happened: First, Poly Network discovered the vulnerability that was used by the hacker to exploit their network and started working to fix it. Second, the hacker returned the stolen coins, by 13 August (2 days after the hack) almost all the coins had been returned. Even though the questions about why the hacker did it and why returned the money are interesting, there are other areas we want to highlight. This heist was announced, dealt with, and fixed in front of everyone’s eyes, with all the crypto community watching and no intervention from a regular financial institution. This is not to say this is the way this kind of hack should work. Certainly, the fact the hacker decided to return the money makes it a happy story. Why highlight this then? To show how different the crypto world works. This kind of incident reminds us that there is a strong community behind crypto and that there are unforeseen problems that may arise in the future and will create new challenges because of their novelty. *** Do remember you can always upgrade your security and reduce risks with easy steps, like using trusted wallets and exchanges. Check our post about security for more information.***
- So, what's Proof of Work?
Proof of Work (PoW) is of the consensus mechanisms we named in an earliest post. PoW is the underlying algorithm that sets the level of difficulty and rules for the work of the miners. Mining is the “work” itself: adding valid blocks to the chain. In other words, PoW are the rules that miners need to follow to generate coins. There are different implementations of PoW, depending on the blockchain we’re looking at. These implementations have subtle differences. For the purpose of this post, we focus on the Ethereum blockchain. You can check its documentation here. As we have said, PoW are a series of rules. For example, in order to maintain the Ethereum blockchain validity, all the miners (nodes) must agree on the state of all the information recorded on the blockchain. Therefore, every time a new coin gets generated, each block needs to be validated by at least half of the existing miners. Another example of these rules is that PoW prevent users from “double spending”, by avoiding duplication of coins. Now let's go to the details: How PoW works inside Ethereum Blockchain? The Ethereum PoW protocol is called Etash. Following PoW, miners invest a vast majority of their resources into find the Nonce -the unique ID- for a new block, through trial and error. Only blocks with a valid Nonce can be added to the blockchain. The trial and error consists in download the full Ethereum blockchain, and put all of it through a mathematical function. This process is repeated many times and generates the 3 elements of the block: a Hash that is a product of the unique Nonce, both related by the block Difficulty. The problem The Difficulty to mine new coins is proportional to the number of miners and blocks generated. Therefore, is becoming increasingly difficult to mine new coins. Because of the above, mining is requiring more and more energy consumptions, which is bad for the environment. Possible solution? Proof of Stake. This mechanism (which we’ll touch on an upcoming post) solves many of the problematics related to PoW but adds another: the need of a substantial amount of ETH to participate. Don’t miss out the next post with some questions answered about PoW, also, the good/bad/ugly about this consensus mechanism.
Other Pages (6)
- Articles | Crypto 4 Impatient
c4i team Aug 28, 2021 3 min Your questions answered: Proof of Work 65 0 5 likes. Post not marked as liked 5 c4i team Aug 22, 2021 3 min Grab your popcorn: The biggest heist on DeFi history 87 0 6 likes. Post not marked as liked 6 c4i team Aug 13, 2021 2 min So, what's Proof of Work? 81 0 5 likes. Post not marked as liked 5 c4i team Aug 6, 2021 2 min Consensus Mechanisms 94 0 4 likes. Post not marked as liked 4 c4i team Jun 10, 2021 3 min Tired of Bitcoin? Altcoins are for you 120 0 2 likes. Post not marked as liked 2 c4i team May 31, 2021 3 min Let’s talk about security 77 0 4 likes. Post not marked as liked 4 c4i team May 16, 2021 2 min The middle ground: stablecoins 88 0 4 likes. Post not marked as liked 4 c4i team May 9, 2021 2 min Volatility and the case of Dogecoin 126 0 4 likes. Post not marked as liked 4 c4i team May 9, 2021 2 min How is that cryptocurrency has economic value? 103 0 6 likes. Post not marked as liked 6 1 2
- About | Crypto for the Impatient
About Us Understanding crypto should not be as difficult. With this idea in mind, we decided to create a website to provide clear and reliable information about the world of cryptocurrency. We study technical documentation, Github repositories, white papers, so you don’t have to! Who are we? You could say we are a couple of nerds, or a lawyer and a Big Data expert… both are accurate. We believe in the power of information and education. In our ever changing world, knowledge about crypto will prove to be of the utmost importance. Our goal is to condense our extensive research into bite-size information articles. Enjoy!
- Cryptocurrency Explained | Crypto for the Impatient
Bite-size information c4i team Aug 28, 2021 3 min Your questions answered: Proof of Work 65 0 5 likes. Post not marked as liked 5 c4i team Aug 22, 2021 3 min Grab your popcorn: The biggest heist on DeFi history 87 0 6 likes. Post not marked as liked 6 c4i team Aug 13, 2021 2 min So, what's Proof of Work? 81 0 5 likes. Post not marked as liked 5 c4i team Aug 6, 2021 2 min Consensus Mechanisms 94 0 4 likes. Post not marked as liked 4 View All