Today we would like to share with you some insights and opinions on Bitcoin mining. When it comes to Bitcoin mining, many people will think that Bitcoin is a very energy-intensive system that consumes a lot of computing power for useless hash calculations daily. They think that electricity should not be used for useless things like Bitcoin mining; because of this, some altcoins hope to use alternative technologies such as POS to eliminate the energy waste caused by Bitcoin mining.
Out of all decentralized consensus mechanisms, why is Bitcoin’s POW the most efficient and energy-efficient way to reach consensus? Let us discuss why.
The origin of POW
Why do you need mining? Because Bitcoin is a peer-to-peer distributed network. In such a network, who should everyone listen to? How should consensus be achieved? This is a very difficult question. For this reason, the inventor of Bitcoin (Satoshi Nakamoto) created a scheme for the entire network to reach a unified consensus, which is called Proof of Work. Here is a simple popularization of science.
To give you an idea: to reach a consensus across the system, a person or a node must be elected to issue orders, and this person or node must prove to the system first that it has contributed a lot of effort. If you want to issue orders to ensure the safety and stability of the entire network, you must pay corresponding labor through energy consumption, and everyone will recognize your contribution. That being said, the entire system only needs to ensure that only one person can issue orders at that time, and then everyone follows his orders, to ensure the stability of the entire network.
The importance of POW
Why is Bitcoin’s system stable only if it chooses proof of work? We can find some clues through a law of physics known as the law of entropy increase. What is the law of entropy increase? A simple definition is that in a closed system, the interior will always develop towards chaos and disorder in the absence of external forces doing work. There are two important points here, one is the closed system and the other is that there is no external force doing work. If these two conditions are not satisfied, then it does not satisfy the law of entropy increase.
The law of entropy increase can be divided into two categories: low and high. Low entropy can be simply understood as having a certain degree of certainty and the structure having a certain degree of stability. According to common sense, it can be understood as a clean, tidy, or orderly system. In contrast, high entropy means a system of uncertainty, chaos, no rules being followed, and so on. The law of entropy increase has a certain mathematical essence, that is, a low-entropy system is a low-probability event, and a high-entropy system is a high-probability event. Therefore, with the natural development of things, the system will spontaneously move from low entropy to high entropy.
Here is an example from our day-to-day life to illustrate what an entropy increase is. Take a house as an example; it was tidy at the beginning, but if it were not to be cleaned continuously, the house would “spontaneously” become disorderly and irregular. This is a typical case of entropy increase. If work is not done in the system of the house, that is, if it is not cleaned up, the house will “spontaneously” progress into chaos. That being said, as a payment system, the security and stability of Bitcoin’s system need to be guaranteed first. If this is not continued to be worked on, it will spontaneously develop into chaos and disorder. Double spending, wrong bookkeeping, and coin theft are all high-entropy states in Bitcoin. Bitcoin mining is about inputting energy from outside to use it to maintain a low-entropy stable state. If energy is not continuously fed into the system, the system will eventually transform into a chaotic system.
Another example are banks. They also have a payment system that needs to maintain a low-entropy state. How do they ensure a safe and orderly state? The energy consumed by banks is far greater than the energy consumed by Bitcoin’s mining mechanisms. Why does a safe and stable payment system need to consume so much energy, and in which aspects?
Banks put in a lot of money in the sunk cost of the building to decorate their headquarters in a magnificent manner to prove to you that the bank is wealthy and that you can trust and deposit money in their bank.
Circulation and transportation of money. Banks transporting cash need to be equipped with a large number of security personnel, armed armored vehicles, and various security measures to ensure the safety of the money. This consumes more energy than any ordinary logistics system, but it is precisely this consumption that ensures the safety of money during transportation.
Manufacturing and anti-counterfeiting of banknotes. Paper money has high technological content and requires many complicated processes to ensure that it is difficult to counterfeit. A large number of scientific research funds are being invested in “anti-counterfeiting,” R&D personnel, and equipment used in a large number of manufacturing. These are the efforts required by the banking system to ensure security and stability, that is, the energy that needs to be injected into the system.
In order to prevent various “high entropy” states, such as money being stolen, internal theft, and corruption, banks need to conduct internal audits frequently. This requires special auditors and supervisory personnel to check the staff of the bank and audit their accounts. Auditing these accounts requires a lot of energy, and accounting requires a lot of paper materials that need to be kept for years which is also a form of energy. Banks and fiats are ultimately endorsed by the state, military, and institutions which are parts of a legally binding monetary system. This statutory force also requires a lot of energy to consume.
Since the banking system is a very centralized system, it has to ensure that the data is secure and that the database is not compromised. To do so, a large number of 24-hour monitors and alarm systems should be set up, and a large number of 24-hour security personnel and security experts should be employed to ensure the security and stability of the bank’s internal database and internal [transfer] system.
To sum it all up, banks need to invest a lot of energy and effort in these aspects to ensure low entropy and a stable state of their entire payment system. If there is a lack of energy consumption in any of the aspects above, or if there is an insufficient energy input, the security of the bank will be greatly reduced, and there may be a variety of chaotic high-entropy states such as bank robberies or fiat counterfeiting that may occur.
High efficiency and energy efficiency of POW
Looking at Bitcoin through the example of a bank, the only place where Bitcoin consumes energy is the mining process, which is very different from the banking system as Bitcoin directly consumes “electricity” in exchange for a low-entropy state of the system without various intermediate sectors, border conditions, other intermediate consumption, etc. thus greatly improving the efficiency of energy utilization because energy is only used to ensure the stability of the system. The complexity will increase as more people participate in the system. To maintain the stability of complex systems, the corresponding energy must also gradually increase, which is why the computing power has been increasing. As more and more people adopt Bitcoin, the ecosystem of Bitcoin becomes more and more open and complex. Correspondingly, the amount of energy required (consumption of computing power) to keep the system stable will also increase.
Bitcoin’s mechanism allows the general public to trust it at a very low cost. We don’t need to trust the gilded halls of a bank, we only need to trust the digital logic behind Bitcoin. While Bitcoin consumes energy, the bank consumes more waste water and electricity. The unused thermal power stations in several places could be given a more efficient use by “reusing” these resources by investing them in a global network that everyone can use and exchange. This could make Bitcoin’s system even more energy-efficient than the bank’s system.
In addition to the energy point of view, Bitcoin also has a particularly important feature to ensure “low entropy,” which is its openness. The law of entropy increase mentions that a “closed system” will spontaneously become chaotic without work done by an external force. If the condition of a “closed system” cannot be satisfied, it will not satisfy the law of entropy increase. Bitcoin is an open system, so you do not need anyone’s consent and anyone to give you permission to engage in Bitcoin mining. Everyone can participate or leave and abandon anytime. Bitcoin is an open system as it has both the characteristics of culling from within and attracting new resources from the outside. An open system maintains stability much more easily than a closed system.
Why is POW more efficient than POS?
Many altcoins try to “cut” Bitcoin's mining process to ensure the payment system's stability. This is what we often call “proof of stake (POS)” and “delegated proof of stake (DPOS)”. They all aim to adopt this proof-of-stake method to avoid the process of wasting energy in Bitcoin. According to our analysis of the fundamental law, the fundamental law is universal and valid for any system, not only exclusive for the Bitcoin system. If you cut out Bitcoin’s process of converting electricity directly into a low-entropy state, then you’ve got to have some other way to do work in order to produce a low-entropy state. Let’s analyze how currencies such as POS can ensure low entropy and stability. Compared with Bitcoin’s proof of work or mining, what are the disadvantages of POS? Why is POS not as efficient as Bitcoin mining?
Proof of stake is simply one coin is to one vote, just like the relationship between a company’s equity where the higher the shareholding ratio is, the greater your right to speak in the company; similarly, the greater your currency holdings in the POS system, the greater your role in the system is, or the higher your monopoly position is. POS has a theoretical background, that is, the person with the highest currency holdings will naturally protect the system since if there is any error or abnormality in the system, the person with the highest currency holdings will actually suffer the greatest loss. So, how to ensure the safety and stability of the system in such a system, does it need to consume energy (of course it does), and where does it need to consume energy?
As a voting system, individuals need to canvass for votes. For example, in the election of 21 supernodes in $EOS, they must go to various places to lobby for votes. This requires a lot of energy consumption, and user voting also consumes energy. Many users don’t even know how to vote, it is difficult to participate in the voting process even for users who hold $EOS, so in the end it becomes oligarchs who vote for each other, and such exchange monopolizes a large number of coins, occupying a large number of votes, etc. There are also instances of “bribing elections” and “decision by committee,” and this energy consumption may not be lower than the energy consumption of Bitcoin. If the committee members want to get together, they may need to fly to a certain location. The energy consumed in these processes also counts in maintaining system stability.
Therefore, this system does not mean that it does not consume energy just because there is no mining involved. It is not as simple and efficient as Bitcoin, which directly converts electrical energy into a stable form. It uses “rule of man” to represent “legal system.” Bitcoin consumes electricity directly, whereas POS consumes more labor costs, transportation costs, trust costs, etc. so it’s not that POS doesn’t consume energy. Without Bitcoin, the conversion of energy into stability is more direct. The energy loss will be even greater if there are too many intermediate processes and states.
In fact, the system established by Bitcoin’s POW directly matches the complexity and energy required to maintain stability and balance the energy consumed. It uses a more sophisticated mining market mechanism to maintain this balance, and POS has difficulty striking a balance between system complexity and required input energy. Therefore, POS is more like a “planned economy,” while POW is a form of a “market economy.” POS needs to consume more energy to achieve the same stability as a POW because the waste generated by “people” is far greater than directly converting electrical energy into a stable form. When the energy of the POS system does not match the required stability, various “unstable” phenomena, that is, “chaos” will occur.
Here are some common “chaos” in the POS system. First of all, its openness is relatively poor, and its entry threshold is very high. If you want to have 50% control of the network, you need to own 50% of the tokens in the system. It will be difficult to buy 50% of the tokens in exchanges and markets, and as you buy the price may be pushed higher, thus making it more and more difficult for you to buy as the cost is getting higher and higher. The cost to reach 50% will be very huge. It is much easier to achieve 50% control in the Bitcoin system, you only need to buy enough computing power. Because computing power and “coin” are two isolated systems, you can produce up to 50% of the computing power without the consent of the currency holder. As time goes by, the price of computing power will keep falling, and as long as you are willing to invest, you will be able to achieve the effect you want. Therefore, the openness of the POS system is much worse than that of POW. According to the law of entropy increase, a closed system is more likely to form a state of chaos and disorder. From a natural point of view, POS is more exposed to the risk of chaos than POW.
Here are two common POS attack examples to illustrate what kind of chaos will occur when the energy input of the POS system is not enough to support stability. The first one is called “Nothing-at-stake” attack, where the POS system can “mine” on different forks, while the POW system can only mine from one fork. POS mining on different forks has resulted in some people being able to influence the entire system with a small proportion of equity. For example, if 99% of people voted on both forks, and only 1% of people did not vote, then this 1% of the computing power can determine the direction of 99% of the computing power. This is just a brief explanation of the risks it may bring; only 1% of the votes can affect the direction of the entire system, or 1% of the equity can fork the entire network. So how does the POS system prevent this kind of “harmless attack?” In fact, there is not much that can be done, and it can only be punished by means of “staking.”
Another way to be attacked is called “Long Range Attack.” This attack method starts from 0 — starting from the first genesis block and recreating a new chain, modifying some of the transactions or tampering with some of the information in it so that there is no way to distinguish the real main chain from the tampered main chain. Because they are all legal in theory, this will cause a part of the network to be separated, and some new joining nodes will be linked to malicious nodes, causing chaos in the entire network.
Another problem that needs to be mentioned about the POS system is its “inflationary nature.” Why does it need inflation? Because it has no way to meet energy consumption directly and there is an absence of a way to meet the energy consumption it needs to supplement the energy in a disguised form. By issuing more tokens, the value of the tokens held by all token holders can be effectively reduced, and the system's stability can be maintained by reducing the energy corresponding to the value. Therefore, inflation is an unavoidable hurdle in POS coins. The POS currencies we have seen basically have the characteristics of “inflation.”
Summary:
Through the analysis of banks and POS systems, it can be concluded that if you want to achieve the same security and stability as Bitcoin, then you must pay more energy through other solutions, which will waste more energy.If you try to bypass the mining mechanism of Bitcoin and the direct energy input, it will bring various security problems and instability, which can be seen from the POS. Therefore, POW is the fairest, most efficient, and most energy-saving consensus solution because it directly converts electrical energy for the stability of the entire system without any loss, and reduces the “entropy” of the entire system without loss.
Finally, I would like to discuss a very interesting topic, that is, the topic of “life.” Schrödinger put forward a theory, which is “Schrödinger’s cat.” What is life? To feed on negentropy is life (or “life feeds on negentropy”). Life is an object that can obtain energy from the outside to maintain its internal stability. From this point of view, Bitcoin and the POW system continuously obtain energy from the outside and can maintain ultra-high stability when it becomes more and more complex. So, is Bitcoin a kind of life?
Note: The article is compiled from the content of the video “[Blockchain Wangzai] Why Bitcoin’s workload proof POW is the most efficient and energy-saving”. The source video link is
https://www.youtube.com/watch?v=5Rog8SKBZSc
