Speaker 1: Welcome to tech Stuff, a production from I Heart Radio.
Speaker 1: Pay there and welcome to tech Stuff. I'm your host,
Speaker 1: Jonathan Strickland. I'm an executive producer with iHeart Radio. And
Speaker 1: how the tech are you? As you can probably tell,
Speaker 1: I'm still very much under the weather right now, and
Speaker 1: as such I'm not quite in the great condition to
Speaker 1: record a full episode, So instead I thought I would
Speaker 1: bring you this episode from last year for it's called
Speaker 1: proof of steak versus Proof of Work. It's all about
Speaker 1: cryptocurrency and blockchain and different ways to verify transactions and
Speaker 1: to add blocks to the chain. And I thought it
Speaker 1: was a good thing to cover because one of the
Speaker 1: big stories for crypto is that you know, ethereum making
Speaker 1: this transition from proof of work to proof of steak,
Speaker 1: but also just the fact that crypto in general has
Speaker 1: had a very bad a year. I mean, you know, economically,
Speaker 1: everyone's having a pretty bad year, and crypto is no exception.
Speaker 1: It has had massive drops in value already multiple times.
Speaker 1: It's always in the tech headlines. So I thought it
Speaker 1: would be good to go back over this talk about
Speaker 1: the two different approaches and UH and how they work,
Speaker 1: and the pros and cons of each, so I hope
Speaker 1: you enjoy proof of steake versus proof of work. One
Speaker 1: thing that I have covered in the past on this
Speaker 1: show is cryptocurrency and blockchain, but I pretty much always
Speaker 1: talk about blockchain in terms of proof of work. Cryptocurrencies
Speaker 1: and proof of work block chains and there are other types.
Speaker 1: So I thought we could go over some of this
Speaker 1: and talk about what all of this means and what
Speaker 1: the differences are. And to start off, we need to
Speaker 1: talk about proof of work. Even though I've done it before,
Speaker 1: We've got to establish that first. So when you've heard
Speaker 1: me talk about how bitcoin mining, you know, is really
Speaker 1: equivalent to a computer solving a really hard math problem,
Speaker 1: or that your computer is essentially making the first accurate
Speaker 1: guests for a particularly large unknown number, you know, I've
Speaker 1: I've often kind of made that analogy. Proof of work
Speaker 1: is related to that. However, the actual concept of proof
Speaker 1: of work predates that of blockchain, or at least of
Speaker 1: blockchain in the term of cryptocurrencies. Blockchain itself also predates cryptocurrency.
Speaker 1: In fact, one could argue that the brilliance of bitcoin
Speaker 1: was bringing these different ideas together into a new format.
Speaker 1: So the proof of work concept was first described in
Speaker 1: a paper that Cynthia Dwark and Mony Nyor wrote back
Speaker 1: in the early nineties. They did not coin the phrase
Speaker 1: proof of work, but what they described effectively is proof
Speaker 1: of work. They were looking to solve a different problem
Speaker 1: from cryptocurrencies, you know, how do we create a system
Speaker 1: of which people can mine a digital currency and validate transactions.
Speaker 1: They were looking at ways to discourage spam email. Their
Speaker 1: paper is titled Pricing via Processing or Combating junk Mail.
Speaker 1: So one of the reasons that spam even exists is
Speaker 1: that it doesn't cost very much to send it out
Speaker 1: at a massive scale. If you had to hire people
Speaker 1: to manually type out spam messages or even just fill
Speaker 1: in the address bar in the email, that would be
Speaker 1: cost prohibitive because the return would be way too low.
Speaker 1: It's actually kind of hard to cite statistics on this
Speaker 1: because there are a lot of different metrics that are
Speaker 1: used in a lot of different time periods we can
Speaker 1: look at. But generally speaking, the response rate on spam,
Speaker 1: that is the percentage of people who actually not only
Speaker 1: open up a spam message, but they act on it
Speaker 1: in some way. That response rate is abysmally low. According
Speaker 1: to a study from the University of California, Berkeley, and
Speaker 1: you see San Diego. Back in two thousand and eight,
Speaker 1: only one in twelve point five million messages gets a response.
Speaker 1: That's way low. Right now, I'm not sure if the
Speaker 1: rate was much higher or if it was even lower
Speaker 1: back in the early nineties when the researchers were working
Speaker 1: on this concept to discourage spam. But when you've got
Speaker 1: a success rate that is that small, the question arises,
Speaker 1: how the heck can it be worthwhile? I mean, how
Speaker 1: can it be worth the time and effort of operating
Speaker 1: a business that sends out spam emails if you have
Speaker 1: a success rate that is that low. Well, the secret
Speaker 1: is to operate on an enormous scale. So, yeah, you're
Speaker 1: only getting one hit out of twelve and a half
Speaker 1: million people, but you're sending out emails to hundreds of
Speaker 1: millions of people. You also have to have a very
Speaker 1: low cost of operation. You know, it can't cost much
Speaker 1: to actually do your business, and you have to have
Speaker 1: a pretty enormous return. When you do have a success,
Speaker 1: like when you get a hit, it's significant, and preferably
Speaker 1: you have all of these at the same time. Keeping
Speaker 1: costs low is a huge part of this with database
Speaker 1: is full of email addresses, automated systems that use boilerplate copy,
Speaker 1: and you know, an automated Robocolors style email program that
Speaker 1: can plug addresses in and and attach it to this
Speaker 1: boiler plate. You can really churn those suckers out. If
Speaker 1: you get a bit over zealous, then you might make
Speaker 1: authorities upset and they might come at you and want
Speaker 1: you to answer some questions. That can be a problem.
Speaker 1: We've seen that happen where spam operations got shut down
Speaker 1: because you know, local politicians got fed up with it
Speaker 1: and started looking into it. But you know, you can
Speaker 1: make a profit working this way. You just again, you
Speaker 1: have to be brutal with cost control in order to
Speaker 1: make this work at scale. So the researchers wanted to
Speaker 1: find ways to make the cost of operation go up.
Speaker 1: Even if it only went up bild tiny little bit,
Speaker 1: that could be enough to wipe out the return on
Speaker 1: investment for spam operators and they would likely abandon the practice.
Speaker 1: If there's no money to be made, then there's no
Speaker 1: reason to send out spam. Right. If you could actually
Speaker 1: make it expensive enough, then it would cost more money
Speaker 1: to send out spam. Then you would recoup whenever you
Speaker 1: got those rare successful responses, and that would definitely bring
Speaker 1: the practice to an end. So let's say you're looking
Speaker 1: at folks who are sending spam out and you're trying
Speaker 1: to discourage them. You're trying to find a way so
Speaker 1: that the spammers give up on what they're doing. Now,
Speaker 1: if you could just put a price on sending an email,
Speaker 1: that would probably do it right. There is a price
Speaker 1: on sending email because operating a computational device has energy requirements,
Speaker 1: and that means you have to pay an energy bill
Speaker 1: at some point. But you want that price to be
Speaker 1: even higher. You want to just attach it straight to
Speaker 1: an email specifically, not just operating a computer. So let's
Speaker 1: say that you decide that all emails will cost a
Speaker 1: fraction of assent to spend to to send one. So
Speaker 1: if you're gonna send an email, you're gonna get charged,
Speaker 1: you know, a fraction of one penny for normal folks
Speaker 1: just sending on emails. It would be such a small
Speaker 1: charge that you probably wouldn't notice. I mean, you wouldn't
Speaker 1: be happy about it, but it's not like it would
Speaker 1: amount too much. If you're sending out maybe ten emails
Speaker 1: a day. Maybe you're getting close to spending half of
Speaker 1: any That would not be a big deal, right, But
Speaker 1: for organizations they are trying to blast out hundreds of
Speaker 1: millions of messages, it quickly becomes cost prohibitive. But this
Speaker 1: approach comes with all sorts of problems because normal folks
Speaker 1: wouldn't be thrilled at having to pay even a fraction
Speaker 1: of a cent to send email. Like, even if you
Speaker 1: framed it that way, people would object. They'd say, why
Speaker 1: are you making it cost me anything to send something electronically?
Speaker 1: There are no physical components to to be handled in this.
Speaker 1: Plus you'd have to set up some sort of payment
Speaker 1: system in the first place, And and whom are you
Speaker 1: paying to whom does the money go? This This makes
Speaker 1: it a difficult and thus unworkable solution. So the authors
Speaker 1: of the paper suggested an alternative. Instead of charging money
Speaker 1: outright to send an email, why not build into email
Speaker 1: systems a processing requirement, as in a computer process or requirement.
Speaker 1: Time someone wants to send an email, their computer must
Speaker 1: first solve a mathematical problem. Uh. And in order to
Speaker 1: solve a mathematical problem, the computer must expend resources. It's
Speaker 1: got to send, spend some of its processing capability on
Speaker 1: solving this problem and also some of its time. The
Speaker 1: difficulty of the problem would require some amount of computational
Speaker 1: output that's equivalent to a fraction of assent. In other words,
Speaker 1: you technically you're still charging folks to use email, but
Speaker 1: the cost is in effort and time, not directly in money,
Speaker 1: and that is something that people would probably be a
Speaker 1: little more receptive to. And again, for the average person,
Speaker 1: they probably wouldn't even notice sending an email might take
Speaker 1: a little longer than it did before, but not by
Speaker 1: so much that they would make that big of a difference.
Speaker 1: So their computer would have to solve some sort of
Speaker 1: mathematical problem, and the proof of the solution would to be,
Speaker 1: you know, signed into the email itself. The problem would
Speaker 1: need to be difficult to solve but easy to verify.
Speaker 1: So in other words, you you cannot send us email
Speaker 1: until whatever system is handling it verifies that you did
Speaker 1: solve the problem. It's kind of like you're not allowed
Speaker 1: to go to bed without your parents checking to make
Speaker 1: sure you did your homework first, same kind of idea.
Speaker 1: So it needed to be the kind of problem where
Speaker 1: you have to work out an answer, and that part
Speaker 1: is hard, But once you have the answer, it's very
Speaker 1: easy to plug that answer into the original problem and
Speaker 1: see that it works. So you can think of something
Speaker 1: like an algebraic equation and it has an unknown value
Speaker 1: in it that you represent as a variable, the classic
Speaker 1: being the letter X. Well, once you solve this equation,
Speaker 1: and you solve for x, you can then plug that
Speaker 1: solution that x value back into the original equation and
Speaker 1: prove that it works well. Their approach was sort of
Speaker 1: the same thing, only much more complicated than that. Moreover,
Speaker 1: they pointed out that if after you implemented the solution,
Speaker 1: you saw spammers trying to, you know, power through it
Speaker 1: and just continue to spam despite the fact that you've
Speaker 1: put this computational requirement in the way, well, you can
Speaker 1: just adjust the difficulty of the problems that they have
Speaker 1: to solve before they can send out more emails. You
Speaker 1: make the problem tougher. Then it takes the computers more
Speaker 1: resources to solve the problems. So the harder the problem gets,
Speaker 1: the more quote unquote expensive it is to send an email.
Speaker 1: And once you get to that tipping point, then spammers
Speaker 1: will see that the amount of time and energy that
Speaker 1: they're using in order to just send out the spam
Speaker 1: emails is not offset by the amount they're making when
Speaker 1: the spam finally starts hitting. Response is this was a
Speaker 1: really interesting proposal. Now let's skip ahead to the two thousand's,
Speaker 1: like two thousand seven, two thousand eight. It was in
Speaker 1: two thousand eight that we first got a white paper
Speaker 1: written by someone using or someone or some some people
Speaker 1: potentially using the pseudonym Satoshi Nakamoto, and this was the
Speaker 1: famous white paper describing Bitcoin. Now, in this piece, the
Speaker 1: author or authors combined the proof of work concept with
Speaker 1: another one that again predated bitcoin, and that was blockchain.
Speaker 1: What blockchain does is establish a timeline of events of
Speaker 1: some sort. So in the case of bitcoin, the events
Speaker 1: are transactions, so their bitcoin transactions when bitcoin changes hands
Speaker 1: from one entity to another. And let's think about timelines
Speaker 1: for a second. In our experience, there is no way
Speaker 1: to travel back in time. The only way to travel
Speaker 1: through time is the way we all do it normally,
Speaker 1: where time progresses forward for us. There's no turning back.
Speaker 1: So that dumb thing you did when you were a kid,
Speaker 1: you know you know which dumb thing I'm talking about.
Speaker 1: It's that dumb thing where sometimes when you're just trying
Speaker 1: to fall asleep, your brain digs up this dumb thing
Speaker 1: and says, hey, remember when you did that dumb thing,
Speaker 1: and do you remember how horrible you feel about it? Now? Well,
Speaker 1: that that dumb thing you did, there's no way for
Speaker 1: you to go back in time and to not do
Speaker 1: that dumb thing. You can't erase it. It's in the timeline.
Speaker 1: And really everything that's happened to you afterward in your
Speaker 1: life has that dumb thing factored into it at least
Speaker 1: on some level. Even if it's undetectable, it's there because
Speaker 1: it happened you know that dumb, dumb thing. Well. Blockchain
Speaker 1: is a computational process that establishes something similar to a timeline.
Speaker 1: The idea is that with a blockchain, you have of
Speaker 1: a timeline of processes, and this timeline is also unalterable.
Speaker 1: Someone cannot go back earlier into the timeline, travel back
Speaker 1: into the blockchain, and make a change, because if they did,
Speaker 1: it would mean that all the later blocks in the
Speaker 1: chain would also have to change, and folks would notice that.
Speaker 1: Because the chain preserves the timeline, everything is built on
Speaker 1: what has come before, So changing something from before would
Speaker 1: change everything that comes afterward, and and the the jig
Speaker 1: would be up. You would be found out immediately. So,
Speaker 1: for example, if you spent bitcoin and then you thought,
Speaker 1: I'm gonna get sneaky, and I'm gonna wait a while,
Speaker 1: and after a while, I'm going to go into the
Speaker 1: blockchain and alter that that record so that I didn't
Speaker 1: spend that bitcoin, and then I magically get the bitcoin back.
Speaker 1: It would be as if money were just magically appearing
Speaker 1: inside your wallet. Well, because all future trans actions are
Speaker 1: built upon past ones, going in and trying to alter
Speaker 1: the blockchain would become visible all the way down and
Speaker 1: you would immediately be found out. So that's how the
Speaker 1: blockchain protects the order of processes that once you start
Speaker 1: to validate a block of transactions, it is cemented effectively. Now,
Speaker 1: occasionally the chain might fork, but at some point one
Speaker 1: branch of this chain is going to be longer than
Speaker 1: the others and it becomes the true chain. The other
Speaker 1: branches become orphaned blocks. Uh. So over time you will
Speaker 1: see things split off from the blockchain, but whichever one
Speaker 1: gets built on the most within a given amount of
Speaker 1: time becomes the true chain. Alright, So blockchains this digital
Speaker 1: method of establishing a series of unalterable processes. Where does
Speaker 1: proof of work come in? All right, So one thing
Speaker 1: that's used a lot in computer science are hash functions.
Speaker 1: These are a little tricky to talk about, all right,
Speaker 1: So first let's talk about encryption. And I want to
Speaker 1: point out right away at the very beginning, encryption is
Speaker 1: not the same thing as a hash function. Encryption is
Speaker 1: where you have some data and you perform a mathematical
Speaker 1: process on that data, and you transform it into different data,
Speaker 1: something that looks absolutely meaningless. You've jumbled it up. No
Speaker 1: one can make head or tail of it just by
Speaker 1: looking at it. But someone with the correct decryption key
Speaker 1: can reverse that process and get at the original data
Speaker 1: and read whatever it was you wrote. That is reversible.
Speaker 1: That is encryption and decryption. Hashing is not reversible. You've
Speaker 1: got some data, all right, let's say it's even the
Speaker 1: same message. Is what we were just talking about with
Speaker 1: encryption and decryption, and you have an operation that is
Speaker 1: one way, which means you can perform this operation on
Speaker 1: the data and you will get a result, But there's
Speaker 1: no reverse process where you can take that result and
Speaker 1: turn it back into the original data. Frequently, hash functions
Speaker 1: have a set number of characters that they will generate
Speaker 1: no matter what original value you plug in. So let's
Speaker 1: say that you've got a hash function that will generate
Speaker 1: an eighty character hash once you apply the function to
Speaker 1: the incoming data. That means your result will have eighty characters.
Speaker 1: Whether your incoming data is a one or if it's
Speaker 1: a one billion or any other number, you end up
Speaker 1: with an eighty character hash. Hashes can be collections of
Speaker 1: letters and numbers, and there are lots of different hash functions,
Speaker 1: which is what proof of work cryptocurrency kind of really
Speaker 1: depends upon. And and here's where we get to the
Speaker 1: key bit. The proof of work cryptocurrencies create a hash
Speaker 1: that is based off the block of transactions that need
Speaker 1: to be verified, as in the next block to join
Speaker 1: the chain. But it doesn't just involve the hash of
Speaker 1: that block or the hashing of that block. The hash
Speaker 1: also incorporates the hash from the previous block of verified transactions,
Speaker 1: the one that came right before. This is where we
Speaker 1: have that link that ultimately goes all the way back
Speaker 1: to the first block, right because block two's hash incorporates
Speaker 1: the hash from block one. Block three's hash incorporates the
Speaker 1: hash from block two, which, as we just mentioned, incorporates
Speaker 1: the hash of block one. So this continues from block
Speaker 1: number one all the way down to the last block
Speaker 1: in the chain. All right, so the bitcoin system generates
Speaker 1: this hash. You've got this value in front of you.
Speaker 1: It's a hash value. You have no idea what information
Speaker 1: went into this to create this hash. Computers connected, you know,
Speaker 1: the nodes connected to the system are essentially all trying
Speaker 1: to figure out how the system generated this specific hash.
Speaker 1: And again, the process isn't reversible, so it's not like
Speaker 1: you can take the hash value that the system presents
Speaker 1: and then reverse engineer it. Instead, essentially you have to
Speaker 1: guess what value would have created this particular hash using
Speaker 1: the hash function of the algorithm. You're you're trying to
Speaker 1: figure out what number was it that made this happen, Essentially,
Speaker 1: And I'll give a really oversimplified kind of idea of
Speaker 1: how this works just in case you're having some trouble
Speaker 1: with it. So again this is an oversimplification. But let's
Speaker 1: say I tell you the answer to this math problem
Speaker 1: is six. What was the math problem? So all I've
Speaker 1: done is given you the answer, and I'm asking you
Speaker 1: what math problem did I do? That gave me the
Speaker 1: answer six, And you could say four plus two, you
Speaker 1: could say two times three, you could say sixteen minus ten,
Speaker 1: and so on. And the point is there's an infinite
Speaker 1: number of potential answers, right, Like, you could say all
Speaker 1: sorts of different things that would be accurate in that
Speaker 1: it would it would create a six, But it doesn't
Speaker 1: necessarily mean that that was the math problem I did, right,
Speaker 1: You're just guessing until someone hits the right math problem. Well,
Speaker 1: in a way, that's what the computer nodes are doing
Speaker 1: within a proof of work blockchain system like Bitcoin, and
Speaker 1: the first computer to guess it correctly wins. Essentially, other
Speaker 1: computers in the system can verify that the guests is
Speaker 1: correct because once you have a guess, then you can
Speaker 1: plug that into the hashing formula and find out if
Speaker 1: in fact it generates the hash you were looking for.
Speaker 1: Then if it does, you got it right, and the
Speaker 1: winning computer system gets the reward of a certain amount
Speaker 1: of cryptocurrency units for bitcoin. Right now, that amount is
Speaker 1: six point to five bitcoins per block. Now, as I
Speaker 1: record this episode, the value of bitcoin is almost fifty
Speaker 1: seven thousand dollars so a six point to five reward
Speaker 1: is equal to nearly three hundred fifty five thousand bucks,
Speaker 1: and there are around one forty four blocks added to
Speaker 1: the chain per day at around three thousand dollars per block.
Speaker 1: So there is a huge financial incentive to run a
Speaker 1: computer system or network of systems that is the first
Speaker 1: to get to this right answer. Right. I mean, there's
Speaker 1: just an enormous amount of money to be made if
Speaker 1: you are number one, So there's a huge incentive to
Speaker 1: be number one. This is why you'll hear about bitcoin
Speaker 1: mining operations that have incredibly powerful machines just racing constantly
Speaker 1: to get the right answer. These machines need a lot
Speaker 1: of power, thus they need a lot of electricity. This
Speaker 1: means a lot of power consumption for any sort of
Speaker 1: proof of work cryptocurrency, with bitcoin obviously being the really
Speaker 1: big one, and that number can go through the roof
Speaker 1: as a currency's value increases, so bitcoin mining actually eats
Speaker 1: up more electricity than some countries do. I've got a
Speaker 1: lot more to say both about proof of work and
Speaker 1: its alternatives, but first let's take a quick break. So
Speaker 1: I left off talking about how bitcoin mining leads to
Speaker 1: the sort of escalation um with people putting more and
Speaker 1: more powerful systems at play to compete against one another
Speaker 1: and try and mind each block in a blockchain in
Speaker 1: order to get more and more bitcoin. This becomes a
Speaker 1: kind of a vicious cycle, right because as long as
Speaker 1: the amount of bitcoin you're getting back is greater than
Speaker 1: the investment you've put forward to try and get the bitcoin,
Speaker 1: it's profit. Right. If I'm spending you know, five dollars
Speaker 1: on a computer system and power needs like I'm I'm
Speaker 1: paying you know these rates to get electricity to power
Speaker 1: all these computers. If I'm if I spend half a
Speaker 1: million on that, well, really, I just I just need
Speaker 1: to successfully mine two blocks a bitcoin to pay off
Speaker 1: that investment. Right, then, as long as I'm hitting more
Speaker 1: success in the future frequently enough, I can offset the
Speaker 1: costs of operation and just keep making profit. So that's
Speaker 1: why it's so um tempting to get into the bitcoin
Speaker 1: mining is that? Yeah? At this point, being a serious
Speaker 1: mining operation means you to put in a huge amount
Speaker 1: of money because there are huge players out there already
Speaker 1: that are running ridiculously powerful computer networks, sometimes co located
Speaker 1: with power plants like you've got old coal based power
Speaker 1: plants in different parts of the world where people have
Speaker 1: built out bitcoin mining operations in the power plant itself
Speaker 1: in order to have direct access to electricity at all
Speaker 1: at a cost that's as low as they can possibly
Speaker 1: get it. And again it's so that you can get
Speaker 1: that that maximum amount of profit um and even then
Speaker 1: it's not guaranteed because there's so many of these systems
Speaker 1: all around the world. So this has obviously led to
Speaker 1: some people to have some objections to bitcoin because it
Speaker 1: has this kind of runaway UH consumption associated to it.
Speaker 1: And it also means that you could argue that bitcoin
Speaker 1: can be connected to things like carbon emissions and climate change,
Speaker 1: because if the power that is, you know, allowing these
Speaker 1: systems to operate, if it's coming from a power plant
Speaker 1: that's using fossil fuels, then that power plant is having
Speaker 1: to to generate enough electricity to send to these systems
Speaker 1: and thus consuming more and more fossil fuels and generating
Speaker 1: more carbon emissions. Now, there are some bitcoin defenders who
Speaker 1: say that the vast majority of bitcoin are connected to
Speaker 1: systems that are running on renewables. But even if you
Speaker 1: look at it that way, you're saying, well, this is
Speaker 1: a significant drain on our energy resources. There's an enormous
Speaker 1: amount of energy that's having to go just towards bitcoin mining.
Speaker 1: And even if you argue that's coming from renewable sources,
Speaker 1: you could say, well, that that energy could be either
Speaker 1: stored so that we can use it for other stuff
Speaker 1: down the line when we aren't able to get and
Speaker 1: those renewable sources as easily, for example, solar at night,
Speaker 1: or that you can just direct that energy towards something
Speaker 1: else besides bitcoin mining. Anyway, I also have to add
Speaker 1: that the bitcoin approach has some built in adjustments that
Speaker 1: are kind of ingenious. So the goal is to keep
Speaker 1: this process more or less consistent with an ideal solution
Speaker 1: time of ten minutes per block in the chain, so
Speaker 1: a new block getting added to the chain approximately every
Speaker 1: ten minutes, that's the goal. Well, obviously, if you add
Speaker 1: more and more a computational power to the system, the
Speaker 1: time it would be needed to to reach the solution
Speaker 1: for any given block is gonna come down. Right for
Speaker 1: a given difficulty of mathematical problem, if you're throwing more
Speaker 1: and more computer power at it, you're gonna reduce the
Speaker 1: amount of time it takes to get the solution. Well,
Speaker 1: that means that the system will take an odd aumatic
Speaker 1: kind of assessment of how long it takes, generally speaking,
Speaker 1: for a block to get verified, and if it's below
Speaker 1: ten minutes, it'll make those problems more difficult, thus increasing
Speaker 1: the amount of time it takes to solve those problems.
Speaker 1: So it's self correcting. In other words, it's saying, all right,
Speaker 1: these blocks are starting to come out a little too frequently.
Speaker 1: We need to slow it down. We'll make the problems
Speaker 1: even harder. And now these computer systems will have to
Speaker 1: work harder, it will take longer for them to get
Speaker 1: the right answer. And again, as long as the return
Speaker 1: on investment is good, that is, as long as the
Speaker 1: bitcoin being mined is more than enough to pay for
Speaker 1: the expense of operating a bunch of power hungry computers,
Speaker 1: then you've got a positive return on investment, and you'll
Speaker 1: have people investing even more in their systems. They'll be
Speaker 1: making them more powerful, adding more computers to their networks.
Speaker 1: But if it ever gets you know, more expensive to
Speaker 1: operate to mine than you get from your cryptocurrency, Let's
Speaker 1: say that you factor in like you figure out I'm
Speaker 1: actually losing money in the long run, in this process,
Speaker 1: because of how much I have to spend to keep
Speaker 1: pace with everybody else and in order to pay my
Speaker 1: power bill. If it gets too expensive, then more and
Speaker 1: more people will drop out of the system, and the
Speaker 1: total computational power connected to the system will also drop.
Speaker 1: That can sometimes mean that it starts to take longer
Speaker 1: to solve the problem than ten minutes. Well again, the
Speaker 1: system says, all right, well, now it's taking you know,
Speaker 1: fourteen minutes to solve a block instead of ten, I'm
Speaker 1: going to make the problems a little easier. So it's
Speaker 1: constantly tweaking itself, well, not constantly, it's regularly tweaking itself
Speaker 1: to meet the abilities of the overall system in order
Speaker 1: to keep that time to solve more or less consistent.
Speaker 1: It However, one of the downsides of this is that
Speaker 1: it that the system totally doesn't care how much computational
Speaker 1: power is being used. Right. It doesn't care if if
Speaker 1: coal power plants all over the world are firing up
Speaker 1: more than ever just in order to fuel bitcoin mining operations. Uh,
Speaker 1: the the algorithm is just concerned with trying to keep
Speaker 1: that time to solve pretty consistent. So that is another potential,
Speaker 1: you know, downfall of proof of work systems. But let's
Speaker 1: talk about the probably you know, some of the best
Speaker 1: known cryptocurrencies that use proof of work, and of course
Speaker 1: the top of that list is Bitcoin. I would argue
Speaker 1: Bitcoin really was responsible for putting cryptocurrency on the map.
Speaker 1: Not only was it famous in that paper, but it
Speaker 1: remains like the best known of all the cryptocurrencies that
Speaker 1: have come out since Bitcoin debuted. But there's also Ethereum
Speaker 1: one point oh, that's a proof of work cryptocurrency. We'll
Speaker 1: talk about Ethereum two point oh in uh just a
Speaker 1: short while, and also doge coin does coin is another
Speaker 1: proof of work cryptocurrency, and there are plenty of other
Speaker 1: famous ones bitcoins. The heavy hitter Ethereum has really emerged
Speaker 1: as a popular cryptocurrency, and a lot of other technologies
Speaker 1: like n f t s actually rely on Ethereum's blockchain,
Speaker 1: so Ethereum's blockchain allows for other innovations to exist on
Speaker 1: top of it. In addition to Ethereum, cryptocurrency, which is
Speaker 1: called ether does coins started off as a joke, and
Speaker 1: despite a few attempts to turn it into a legit currency,
Speaker 1: is still mostly a joke that a lot of people
Speaker 1: poured a lot of money into I'm not saying people
Speaker 1: didn't make money off dog coin. I'm saying that a
Speaker 1: lot of people made money off doge coin by convincing
Speaker 1: other people to get into doge coin, thus potentially artificially
Speaker 1: driving up the value of the cryptocurrency. That's another thing
Speaker 1: I should really address very quickly. A lot of this
Speaker 1: off we'll talk about talks about the value of cryptocurrency.
Speaker 1: Cryptocurrency doesn't necessarily have an innate value to it because
Speaker 1: it's not tied to like a centralized financial institution. Its
Speaker 1: value is dictated by the market, like the system itself.
Speaker 1: It's it's kind of self supportive that way. So we
Speaker 1: see a lot of these cryptocurrencies have pretty volatile values.
Speaker 1: They go up and down dramatically sometimes sometimes why they
Speaker 1: order of tens of thousands of dollars. In the case
Speaker 1: of bitcoin, you know, we saw it nearly at sixty
Speaker 1: dollars per bitcoin, then down to around twenty thousand dollars.
Speaker 1: Now it's back up to almost sixty thousand. Again, that's
Speaker 1: all within the span of a year. It's crazy anyway. Um, Yeah,
Speaker 1: it's that that's a separate entity that doesn't necessarily have
Speaker 1: anything to do with the tech. So now we're gonna
Speaker 1: talk about proof of steak, and in order to understand that,
Speaker 1: we have to talk about what proof of steak and
Speaker 1: proof of work both need to do. So again, we've
Speaker 1: got our blockchain. We have to have a way to
Speaker 1: verify transactions. We need some sort of system in place
Speaker 1: that says person X sent person, why some cryptocurrency equaling
Speaker 1: z amount. Right, You've gotta have some record of this. Otherwise,
Speaker 1: because it's all digital, people could just try and keep
Speaker 1: spending the same digital unit of currency more than once,
Speaker 1: or they might you know, quote unquote give themselves a
Speaker 1: billion dollars by copying a digital unit. So you have
Speaker 1: to have some method to keep order in this system,
Speaker 1: or else the system just doesn't work. So there has
Speaker 1: to be a process by which you verify and publish
Speaker 1: these transactions. Uh. In the case of cryptocurrencies and block chains,
Speaker 1: that's in a centralized ledger, not a central a decentralized
Speaker 1: ledger actually, because every node has access to seeing the ledger. Um.
Speaker 1: You also need to have some means of circulating new
Speaker 1: units of currency into the system. You have to have
Speaker 1: some way of mining in other words, So let's talk
Speaker 1: about bitcoin again. For a second, Bitcoin launched with a
Speaker 1: cap on how many bitcoin there will ever be. Ever,
Speaker 1: that cap is twenty one million bitcoin, and Nakamoto did
Speaker 1: not release all twenty one million units of bitcoin into
Speaker 1: circulation at once. Instead, bitcoin stands as a reward for
Speaker 1: verifying bitcoin transactions. It's an incentive for people to dedicate
Speaker 1: computational power to provide proof of work and verify transactions.
Speaker 1: So it's a very delicate ecosystem designed to perpetuate the
Speaker 1: usefulness of bitcoin. So every time a computer solves a block,
Speaker 1: it gets a bitcoin reward, but the amount of that
Speaker 1: reward decreases by half every four years or so. So
Speaker 1: back in two thousand nine, in the early days of bitcoin,
Speaker 1: the reward to minor block was fifty bitcoin. Well, by
Speaker 1: two thousand twelve that came down to twenty five bitcoin.
Speaker 1: By two thousand sixteen we got down to twelve and
Speaker 1: a half bitcoin. Now we're at six point to five bitcoin.
Speaker 1: In twenty four it will drop again to three point
Speaker 1: one to five bitcoin, and so on. Also, the total
Speaker 1: number of unmined bitcoin has dropped right like, over time,
Speaker 1: we have mined more and more of the total bitcoin today,
Speaker 1: we're looking at around two million bitcoin that have yet
Speaker 1: to be mined, So that means that almost nineteen million
Speaker 1: bitcoin are already out in circulation, some of which are
Speaker 1: just lost forever because they got stored in you know,
Speaker 1: like a hard drive that got inaccessible. So not all
Speaker 1: that those nearly nineteen million bitcoin are still valid these days.
Speaker 1: They I mean they exist, is they still have value,
Speaker 1: just no one can get to them. Well, you might
Speaker 1: wonder what happens when all the bitcoins that can be
Speaker 1: mined have been mined. Now, due to the way bitcoin
Speaker 1: does rounding, it actually means we're not going to see
Speaker 1: all twenty one million bitcoins inter circulation. There will be
Speaker 1: a small amount, a very very small amount that just
Speaker 1: remains unmined because the math just doesn't work out. There
Speaker 1: are a lot of unknown variables about this that we
Speaker 1: have to take into account, and so it means that
Speaker 1: ultimately nobody really knows. But one thing that we, you know,
Speaker 1: have to think about, is that we don't know what
Speaker 1: the value of bitcoin is going to be by the
Speaker 1: time we get to the point where the final bitcoins
Speaker 1: are going to be mined, because the number awarded drops
Speaker 1: by every four years, we see the total unmined number
Speaker 1: of bitcoin dropping less during each four year period. So
Speaker 1: early on we saw that the total number dropped quickly
Speaker 1: because folks were getting fifty bitcoin per block UDT four
Speaker 1: blocks per day, it's going down pretty fast. These days,
Speaker 1: the number drops more slowly because it's six point to
Speaker 1: five bitcoins per block now. It will be even slower
Speaker 1: after four and so on. So the schedule means that
Speaker 1: while we've mined around nine of all bitcoins already, we
Speaker 1: won't have hit the bottom until that's the year where
Speaker 1: we will essentially have all the bitcoins out. So unless
Speaker 1: the value for bitcoin really goes bonkers, and it might,
Speaker 1: then we should see more folks drop off of bitcoin
Speaker 1: mining in several years, because again the returns will be lower,
Speaker 1: like if if it's you know, if it holds steady,
Speaker 1: if the value holds steady, but you're getting fewer bitcoins
Speaker 1: than eventually you start to hit that that negative return
Speaker 1: on investment where you're losing money to go so hard
Speaker 1: trying to get a bitcoin, and if it costs more
Speaker 1: to operate your computer, then you're getting back in bitcoins
Speaker 1: thence and that loss you're gonna stop. And once all
Speaker 1: the bitcoin or in circulation, there are no more coins
Speaker 1: to mine, so verifying a block of transactions could generate
Speaker 1: payouts in the form of transaction fees, and that means
Speaker 1: there will still be at least an incentive for nodes
Speaker 1: to participate in the bitcoin system, but the transaction fees
Speaker 1: might be really modest compared to what we're seeing in mining,
Speaker 1: And honestly, no one's really sure how this is all
Speaker 1: going to shake out in the long run. But the
Speaker 1: reason I even talk about that is because proof of
Speaker 1: steake has to solve the same issues proof of work does.
Speaker 1: In order for the blockchain to be useful, there has
Speaker 1: to be a way to verify transactions. There needs to
Speaker 1: be a way to release more cryptocurrency into circulation. You
Speaker 1: have to reward people for participating in order to encourage
Speaker 1: them to participate in the first place, and unless you're
Speaker 1: just dumping everything out at once, there does have to
Speaker 1: be a method of, you know, metering out a certain
Speaker 1: amount of cryptocurrency every given amount of time. So proof
Speaker 1: of steak the phrase gives you a bit of a
Speaker 1: hint about what's going on. The people, or rather, you know,
Speaker 1: the nodes, the computer systems that are participating within this
Speaker 1: cryptocurrency blockchain. Uh, the ones that are responsible for verifying
Speaker 1: a block of transactions have to post a stake of
Speaker 1: cryptocurrency that they possess within that system, Something of that
Speaker 1: native cryptocurrency has to go into a pool of steaks,
Speaker 1: so they have to contribute some minimum amount in order
Speaker 1: to be part of the verification process. Now, in proof
Speaker 1: of work approaches, we talk about systems being miners, right,
Speaker 1: they are mining cryptocurrency. In proof of steak systems, we
Speaker 1: talk about validators. These are people who have systems that
Speaker 1: validate or verify a transaction, and then the other stakeholders
Speaker 1: validate that verified block so that joins the chain. In
Speaker 1: other words, they're checking the work of the primary validator.
Speaker 1: They're saying, is this a valid block in the blockchain?
Speaker 1: All right, I'm gonna need to take a quick breath
Speaker 1: and then we'll come back with more about proof of steak. Okay,
Speaker 1: so we've got this proof of steak approach where in
Speaker 1: order to participate, you have to put up a steak
Speaker 1: of the native cryptocurrency and that will allow you to
Speaker 1: be a validator. Uh. The systems reward people who have
Speaker 1: established uh that sufficient amount of cryptocurrency. And let's use
Speaker 1: an example, because this is getting too vague, will use
Speaker 1: Ethereum two point oh. So you remember I said ethereum
Speaker 1: one point oh is proof of work. Well, for a
Speaker 1: few years now, Ethereum has been laying the groundwork to
Speaker 1: switch over to a proof of steak system, and that's
Speaker 1: going to be Ethereum two point oh and essentially one
Speaker 1: point oh is going to get merged into two point oh. Now,
Speaker 1: in order to be a validator in ethereum two's ecosystem,
Speaker 1: you have to put up a stake of at least
Speaker 1: thirty two ether. Ether is the unit of currency within Ethereum.
Speaker 1: Now at the moment, one unit of ether, so one
Speaker 1: ether is equivalent to nearly three thousand, six hundred bucks,
Speaker 1: and you have to have at least thirty two of them,
Speaker 1: which is the equivalent of around a hundred fifteen thousand
Speaker 1: dollars to be a validator for ethereum two point oh.
Speaker 1: So you probably already see something that's a bit of
Speaker 1: a barrier in here, but we'll get back to that
Speaker 1: all right. So to be part of proof of steak,
Speaker 1: you have to stake whatever that minimum amount is, you know,
Speaker 1: like the thirty two ether. The system then selects a
Speaker 1: winning validator from the pool of people who have placed
Speaker 1: a steak into this cryptocurrency pool, and the system will
Speaker 1: typically choose a winner based on two criteria. How much
Speaker 1: cryptocurrency have they staked. So remember thirty two is the minimum,
Speaker 1: it's not the maximum, so if you put in way more,
Speaker 1: you are increasing your chances of being chosen as the winner.
Speaker 1: Two uh to verify or validate a block of transactions.
Speaker 1: The other criteria is that how long the steak has
Speaker 1: actually been in the pool, So the system rewards people
Speaker 1: who have been part of the system longest and who
Speaker 1: have the largest steaks in the system. So the more
Speaker 1: you stake and the longer you do it, the more
Speaker 1: likely you're going to get chosen as the winner. When
Speaker 1: you are chosen as the winner, then your computer goes
Speaker 1: through the process of validating the transactions and upon your
Speaker 1: system saying all right, I figured it out. I've got
Speaker 1: the solution. Then the other validators that have put a
Speaker 1: stake into this cryptocurrency pool will test your solution during
Speaker 1: the atestation phase, and once enough validators have verified that
Speaker 1: your solution is correct, that block joins the blockchain. All
Speaker 1: participating validators then get paid out a reward in cryptocurrency.
Speaker 1: So in the ethereum case, they would get some ethereum,
Speaker 1: and the amount given to each validator would be you know,
Speaker 1: proportional in some regard to the size of the steak
Speaker 1: that they put in. So if you put in a
Speaker 1: really big steak, you'll get a bigger percentage of the
Speaker 1: reward each time. Now, you don't have to be a
Speaker 1: winner to get a reward, you just have to participate
Speaker 1: in the process. You have to be an active node
Speaker 1: in the ethereum system in this as however, this does
Speaker 1: mean that in order to be a participant you first
Speaker 1: have to meet that minimum criteria. And this is a
Speaker 1: really steep cost, and it's so much though that it's
Speaker 1: effectively a barrier. I mean, it's a system that disproportionately
Speaker 1: rewards the people who already have a substantial ownership in
Speaker 1: that system. Or if you want to think of it
Speaker 1: in another way, the rich get richer, and they get
Speaker 1: richer because they're already rich. If you're not a hundred
Speaker 1: gees deep in ether, you're out of luck. You don't
Speaker 1: have enough to post a thirty two ether steak and
Speaker 1: become a validator. It becomes a bit of a catch
Speaker 1: twenty two because you can't afford to join the validators
Speaker 1: without making more ether, and you're not going to make
Speaker 1: more ether without being a validator and getting those rewards. Now,
Speaker 1: you could always purchase more ether and thus build up
Speaker 1: your ether over time, or you could join a steak pool.
Speaker 1: This is something that is sometimes called delegating. This is
Speaker 1: where you join a group of folks who are all
Speaker 1: pooling smaller amounts of cryptocurrency that collectively meet the requirements
Speaker 1: of a full steak in the validation process. So essentially
Speaker 1: there's a leader who's who's node is acting as the
Speaker 1: focal point for all this. Everyone else pours their smaller
Speaker 1: cryptocurrency investments into a pool the again collectively gets staked
Speaker 1: for this one node. The node ends up receiving rewards
Speaker 1: based upon the size and of that steak, and then
Speaker 1: divvies it up amongst the people who invested in that pool. Essentially,
Speaker 1: it's the same thing as the general proof of steak approach,
Speaker 1: but on a smaller level. Now, that does tend to
Speaker 1: be one of the big criticisms for proof of steak,
Speaker 1: that it's something that prevents a lot of people from
Speaker 1: meaningful participation in the system, and it's rewarding people who
Speaker 1: are already financially well off because that's how the system works.
Speaker 1: While cryptocurrencies are decentralized and that they don't rely on
Speaker 1: a single financial authority, they can somewhat functionally become centralized,
Speaker 1: kind of like by a caball that has large enough
Speaker 1: steak in the stuff and everybody else is just kind
Speaker 1: of on the periphery. Uh. It's also possible to have
Speaker 1: your steak reduced in these systems. So let's say that
Speaker 1: you were picked as a winner to verify a block
Speaker 1: of transactions and you end up validating a bad block
Speaker 1: of transactions, and then others during the aid to station
Speaker 1: phase they test your solution and they realize this, there's
Speaker 1: something wrong here. Well, you can get dinged for that,
Speaker 1: and you can see the system actually take away part
Speaker 1: of your steak that you had put up into the
Speaker 1: cryptocurrency pool. You might even fall below the amount needed
Speaker 1: to be a validator and you would have to add
Speaker 1: in extra cryptocurrency to bring you back up to the minimum,
Speaker 1: So you could get really hurt that way. Or let's
Speaker 1: say your validation node hasn't met the minimum requirement for
Speaker 1: active hours on the system. Now, remember these validators are
Speaker 1: necessary to make sure that transactions actually get verified or
Speaker 1: else the whole system just doesn't work as a financial system.
Speaker 1: So if someone's not pulling their weight, then they might
Speaker 1: also see their steak get dinged as a result. Now
Speaker 1: that being said, proof of steak does have some pretty
Speaker 1: big advantages as well. One of those is that proof
Speaker 1: of steak approach, generally speaking, has a lower resource requirement
Speaker 1: than proof of work, or at least lower resource requirements
Speaker 1: than proof of work systems that are as active as
Speaker 1: say bitcoins. When a proof of work cryptocurrencies value increases,
Speaker 1: as I said earlier, it incentivizes people to mind the cryptocurrency,
Speaker 1: so the overall computational power in that system goes up,
Speaker 1: as do the resource requirements to run those systems. But
Speaker 1: proof of stake doesn't rely on computer systems racing against
Speaker 1: each other to come up with the right answers, so
Speaker 1: you don't see this cycle of escalation, and thus you
Speaker 1: don't see this need for increased amounts of processing power
Speaker 1: being thrown at the system. Now, does this mean that
Speaker 1: a proof of stake system will always be less resource
Speaker 1: hungry than a proof of work, not exactly, because it
Speaker 1: actually depends, Like if you have a proof of work cryptocurrency,
Speaker 1: but the cryptocurrency is practically worthless, like it's fractions of
Speaker 1: a penny per unit, chances are there won't actually be
Speaker 1: that many people who are bothering to mine that cryptocurrency
Speaker 1: because it means they've spend more on the electricity they
Speaker 1: were using than they were making as a minor. So
Speaker 1: that leads to fewer people participating and the resource demand
Speaker 1: for that particular system remains relatively low. If you have
Speaker 1: a really healthy proof of stake system, you might have
Speaker 1: lots of validators who are actively participating in that system,
Speaker 1: and so the resource demand could be greater. So really,
Speaker 1: like I said, it just depends upon the situation. But
Speaker 1: it's pretty safe to say that if you had two
Speaker 1: more or less equal systems, like the cryptocurrency was more
Speaker 1: or less the same value, and one of them was
Speaker 1: running on a proof of work system and the other
Speaker 1: one was running on a proof of steak system, the
Speaker 1: proof of steak one would likely require less processing power
Speaker 1: and fewer resources to run. So proof of steak is
Speaker 1: arguably the best known alternative to proof of work cryptocurrency systems,
Speaker 1: But there are others. For example, there's proof of burn,
Speaker 1: and it sounds like I'm making that up, but I'm
Speaker 1: not so. Proof of burn was proposed as a way
Speaker 1: of achieving the same thing as proof of work, but
Speaker 1: without the escalating increase of resources and energy requirements. But
Speaker 1: this one makes my head hurt, and it makes me
Speaker 1: realize that I'm never truly going to understand cryptocurrency, blockchain,
Speaker 1: or for that matter, finance. All right, So, in a
Speaker 1: proof of burned system, participants who wish to have the
Speaker 1: opportunity to verify the next block. In other words, they
Speaker 1: want to be the one to mine the next block
Speaker 1: and get the reward for it, they must first burn
Speaker 1: virtual currency. That virtual currency might be the native cryptocurrency
Speaker 1: of the system itself, or it might be some other
Speaker 1: virtual currency, depending on the system. Some systems allow for either.
Speaker 1: So what does burning actually mean? I mean, these are
Speaker 1: all bits of digital information. What is there to burn? Well,
Speaker 1: in this case, burning means sending virtual currency to an
Speaker 1: address that is verified to be an unspindable account. In
Speaker 1: other words, it can accept currency, but currency is never
Speaker 1: gonna leave it. It will never a release that currency again.
Speaker 1: So it's kind of like walking up to a bottomless
Speaker 1: pit and just chucking some cash into that bottomless pit,
Speaker 1: and in return for doing that, the system says, all right,
Speaker 1: you will be considered for the job of writing the
Speaker 1: next block on the block chain and thus getting a reward.
Speaker 1: The more money you chuck into the bottomless pit, the
Speaker 1: greater the chance that the system is going to choose you.
Speaker 1: You could you know, system is saying, hey, look how
Speaker 1: dedicated this person is. They're dumping their entire life savings
Speaker 1: into a bottomless pit. Let's pick them now. Obviously, you
Speaker 1: would never want to spend more money than you would
Speaker 1: potentially earn back by writing more blocks to the chain.
Speaker 1: But you could be playing the long game. You could
Speaker 1: be making a big investment and thus burning a lot
Speaker 1: of virtual currency early on, hoping that this will eventually
Speaker 1: pay out over the long run, assuming that the currency
Speaker 1: continues to hold its value or increase its value, and
Speaker 1: that you you get picked multiple times to build the
Speaker 1: next block in the blockchain. But when I read up
Speaker 1: on how the proof of burn concept creates a system
Speaker 1: that's more agile, that just confuses me. I had a
Speaker 1: wall that represents the limit of my understanding, and trust me, guys,
Speaker 1: despite having read multiple articles, I have not found a
Speaker 1: crack in that wall of ignorance. Yet my ignorance has
Speaker 1: more than met the challenge of my research. I've got
Speaker 1: a couple more alternatives to proof of work and proof
Speaker 1: of steak to talk about. Before I get to those,
Speaker 1: let's take one last break. All right, we've talked about
Speaker 1: proof of work, proof of steak, and proof of burn,
Speaker 1: but there's also proof of capacity. Now. In this system,
Speaker 1: participants vi to be the ones to mind the next
Speaker 1: block by providing hard drive space to the system. So
Speaker 1: the more hard drive space you provide, the better the
Speaker 1: chances are that you're going to be the one picked
Speaker 1: to mind the next block and thus get the reward.
Speaker 1: The system stores data in bunches called plots, which get
Speaker 1: deposited on the hard drive space that participants are volunteering
Speaker 1: to the system. So the more plots that you have
Speaker 1: on your hard drive, the better the chances you'll get
Speaker 1: selected to mind the next block. So again, providing more
Speaker 1: hard drive space gives you more opportunity to house plots.
Speaker 1: The more plots you have, the better chance you have
Speaker 1: to get the next round of rewards. But this approach
Speaker 1: kind of does with hard drive space what bitcoin used
Speaker 1: to do with graphics cards. You know, back in the day,
Speaker 1: graphics cards were seen as being absolutely instrumental to a
Speaker 1: successful bitcoin mining operation, and it made it really hard
Speaker 1: to get hold of graphics cards as they came out
Speaker 1: because bitcoin miners are buying them up and driving the
Speaker 1: prices way way way up. These days, graphics cards don't
Speaker 1: measure up to the requirements of bitcoin miners really, at
Speaker 1: least not serious bitcoin miners. They've moved on to other systems. Uh,
Speaker 1: graphics cards can still be hard to get sometimes though,
Speaker 1: and occasionally you do have some bitcoin miners who are
Speaker 1: still depending on them. They just have very little chance
Speaker 1: of winning in a proof of work system. All right,
Speaker 1: then we've got proof of elapsed time. This one comes
Speaker 1: courtesy of Intel, as the company known for making processors
Speaker 1: and such that Intel like Intel inside Intel, Well, they
Speaker 1: created this algorithm which uses kind of a lottery based system,
Speaker 1: so all participating nodes within this blockchain system have an
Speaker 1: equal chance of winning. So the more nodes that participate,
Speaker 1: the lower your odds are that you will win. Right Like,
Speaker 1: It's like one of those sweepstakes where they say what
Speaker 1: are the odds of winning, Well, the odds of winning
Speaker 1: depend upon how many entries we get. If we get
Speaker 1: two entries, your odds of winning are but if we
Speaker 1: get a billion entries, it's going to be a different story.
Speaker 1: Kind of similar. So the algorithm in this case creates
Speaker 1: a random amount of time for each node in the system.
Speaker 1: So each node is assigned a random amount of time
Speaker 1: to quote unquote go to sleep. Essentially, it's saying this
Speaker 1: is how long you have to wait before you indicate
Speaker 1: that you're ready to validate a block of transactions. And
Speaker 1: like I said, it's randomly generated for every single node,
Speaker 1: So one node might get the equivalent of you have
Speaker 1: to wait five minutes, and another node might be told
Speaker 1: you have to wait ten minutes, and the next node
Speaker 1: might be told you need to wait two minutes, and
Speaker 1: then all the nodes go to sleep, and then the
Speaker 1: first node that wakes up, So essentially the first node
Speaker 1: that gets the node that gets the shortest amount of
Speaker 1: time to wait winds. But this is again randomly generated,
Speaker 1: so it is like a lottery. It's essentially the same
Speaker 1: thing as being given a random number. And then you
Speaker 1: have a drawing from a bunch of random numbers and
Speaker 1: if yours matches, then you win. Our processors go into
Speaker 1: sleep mode, so that means that they're not actually actively
Speaker 1: processing on behalf of this system, and that means that
Speaker 1: they're actually consuming slightly less power than a proof of
Speaker 1: work system. That was the whole reason behind the creation
Speaker 1: of proof of elapsed time algorithms. It's that it does
Speaker 1: something similar to proof of work, but you don't actually
Speaker 1: have all these processors dedicating all of their their resources
Speaker 1: towards solving difficult math problems. So it does have a
Speaker 1: lower energy requirement than proof of work systems. And um, yeah,
Speaker 1: I'm just giving you an overview of all these concepts.
Speaker 1: Like I'm not diving into super deep detail. Even as
Speaker 1: long as this episode is, and I get it, it's
Speaker 1: a long one. This is still scratching just the barest
Speaker 1: of surfaces as far as these algorithms and UH and
Speaker 1: financial systems go. And again, like once I started diving
Speaker 1: down a little bit further, I get well beyond my understanding,
Speaker 1: including how different approaches handle stuff like if a bad
Speaker 1: actor is determined to try and leverage the system for
Speaker 1: their own financial gain. So, for example, on that with
Speaker 1: proof of work, you can have something called at attack.
Speaker 1: This is when you get a group of cryptocurrency investors
Speaker 1: who represent more than fifty of all hash mining capability.
Speaker 1: You can think of it as more than of all
Speaker 1: computational power dedicated to mining. If you were to get
Speaker 1: or more of the my aiming capability in bitcoin to coordinate,
Speaker 1: you could potentially manipulate the system. You could potentially create
Speaker 1: verifications of transactions that break that that last block. You
Speaker 1: couldn't go back in time and change stuff that's still immutable,
Speaker 1: but for a current block of transactions, you could erase
Speaker 1: a transaction that you did so that you would once
Speaker 1: again have the bitcoin that you've already spent. You could
Speaker 1: also monopolize the mining of the blocks, like you could
Speaker 1: prevent anyone who's outside of that from successfully mining a
Speaker 1: block and thus end up getting all of the reward
Speaker 1: bitcoin for your group. This is a threat that has happened,
Speaker 1: like we've actually seen these play out in some smaller
Speaker 1: cryptocurrency markets. Uh, once it gets to a certain size,
Speaker 1: it's very hard to coordinate on that kind of level.
Speaker 1: There's just there are too many players that too too
Speaker 1: involved in their own self interest to be able to
Speaker 1: do that, but it has happened before with some of
Speaker 1: the smaller cryptocurrency markets, you know. It's It's also something
Speaker 1: that's even harder to do if you've got a proof
Speaker 1: of steak model, because in order to have that kind
Speaker 1: of level of influence with proof of steak, you have
Speaker 1: to put forward an even larger steak. Same with like
Speaker 1: the proof of burn model, right, it means that your
Speaker 1: initial expense in order to have that leverage is so
Speaker 1: high that it's not worth the payout. So there are
Speaker 1: different ways to go about trying to stop bad actors
Speaker 1: from tipping the system. But again, once you get beyond
Speaker 1: these early explanations, it starts to get to a level
Speaker 1: where I'm like scratching my head and left wondering what's
Speaker 1: for dinner because it's the only thought I can even
Speaker 1: manage to deal with at that point. I hope you
Speaker 1: found this interesting and that you learned a bit about
Speaker 1: proof of stake, the big alternative to proof of work.
Speaker 1: We will have to see how these various philosophies play
Speaker 1: out over time and whether or not they are successful.
Speaker 1: It's still early days. Honestly, I'm still really curious what
Speaker 1: happens in the long term with bitcoin, like we might
Speaker 1: see the value of bitcoin continue to go up. There
Speaker 1: are those who argue that it might be you know,
Speaker 1: two dollars per bitcoin before too long. Um, maybe that
Speaker 1: will happen. It would be scary to see in many ways,
Speaker 1: because again, that volatility is something that worries me in
Speaker 1: the long run. Also, I should point out that a
Speaker 1: lot of people who are real evangelists for cryptocurrency, I
Speaker 1: get the sense, and maybe this isn't even conscious, but
Speaker 1: I get the sense that part of their enthusiasm, or
Speaker 1: a great deal of their enthusiasm, is that if they
Speaker 1: get more people on board with cryptocurrency, cryptocurrency values generally
Speaker 1: start to increase. There there becomes this sort of speculation
Speaker 1: where more people start to invest and that drives the
Speaker 1: value of the cryptocurrency up. So if you already have
Speaker 1: a steak in cryptocurrency, it looks like there's kind of
Speaker 1: an incentive to get more people on board, and that
Speaker 1: feeds into this sort of evangelical approach to talking about cryptocurrency,
Speaker 1: and that strikes me as a bit ikey, because when
Speaker 1: I look at the proof of steak approach, for example,
Speaker 1: I know I am never going to have a sufficient
Speaker 1: number of cryptocurrency units in whatever system to be able
Speaker 1: to participate in proof of steak. But what I might
Speaker 1: be doing is by getting involved in one of these,
Speaker 1: I might help drive the value of the currency up,
Speaker 1: and so someone who already has a signal nificant investment
Speaker 1: sees that investment increase. I'm essentially helping someone else get
Speaker 1: even more wealthy. And while I don't mind helping other people, um,
Speaker 1: I'd rather help the people who aren't wealthy at all
Speaker 1: rather than help people who are wealthy get wealthier. I
Speaker 1: would just like to direct that that sort of humanitarian
Speaker 1: impulse towards folks where it would make a bigger difference
Speaker 1: in their lives. But that's just me, and that was
Speaker 1: proof of state versus proof of work. If you're curious,
Speaker 1: that episode originally published October eleventh, two thousand twenty one,
Speaker 1: so just last year. If you have suggestions for topics
Speaker 1: actually cover in future episodes of Text Stuff, you just
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