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