Proof of Work vs Proof of Stake - P.2


In order to make the block-making process more selective, the blockchain will requires each block to have a Proof of Work attached to it.

To resolve the trust issue mentioned in the previous part, the blockchain have offered a 2-parts solution:

Part 1: A cryptographic decentralized system

Any information on the blockchain will be available for public consultation – a public ledger- but in an encrypted form. Information related to a transaction process, such as user’s identification, their signatures, the amount of money transacted, etc., will go through a cryptographic irreversible transformation, making it practically impossible for hackers to alter the transaction data of other accounts ( for anyone who wish to learn more about the cryptographic process, please follow this article about Hashing). But it is still possible for evil-doer to tamper with their own data.

For example: if someone make an almost identical copy of the real ledger, with only one minor twist in the latest transactions, the hacker replaced his or her own address into the “receiver” slot. By doing this, every unprocessed transactions on the whole system will only go to one single address - the hacker’s wallet. The hacker may not be able to steal from the whole blockchain, but stealing from only the newest batch of transactions still enable them to a good profit. This apparently insignificant move can be catastrophic/painful to the sender/ owner of the wallet.

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Part 2: To prevent issue of multiple “original” copies – came in  Proof of Work

By requiring each new block to have a Proof of Work attached to it, the system makes it harder to actually create a new block – thus limiting the creation of new copies. In simple terms, the proof is the result of a relatively difficult mathematical problem, requiring high computational power to solve but is relatively easy to verified. And the result will be attached along with the data block. Since the block creation process requires time and computational power,  not everyone can create fake data.

And when there are two conflicting data blocks presented, the system will automatically choose the more complex “proof”. In essence, the more complex proof would require more computers to solve, which often mean more people would need to join in the process. So, between two conflicting data set, the more complex result would imply more people to support the data set, thus making it more trustworthy, and the creators of the block will get a handsome reward.

PoW underlying risks.

In Bitcoin blockchain, bitcoins are a reward for miners, and the same idea was applied for many other altcoins blockchain.

But there is a risk of a 51% attack

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Imagine, in a blockchain operated by 100 computers,  one hacker has infiltrated and taken control of 51 computers, which also mean 51% of the whole blockchain. The hacker can now use the 51 computers to create a “proof” exclusively to his or her scheme.

By possessing 51% computational power of the whole blockchain, the hacker’s proof will be the most complex “proof” in the whole blockchain as there is only 49 computers remained. With the most complex “proof”, the hacker’s demand for any transaction will be approved, including withdrawal and transfer of money.

In a blockchain as massive as Bitcoin, this is almost next to impossible. But, with the growing trend of hacking hardwares for mining operation, one hacker can accumulate sizable computational power. And against this enmassed power a private or newly established, small scale blockchain would easily fall.

So, what is the blockchain answer to this risk?

(to be continued)

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