The theory of decentralized digital currency is not recent, but actually began in the 1980’s and 1990’s, when it was known as Chaumian Binding, but it was dependent on a centralized intermediary, which caused Chaumian Binding to not take off. It was followed in 1998 by Wei Dai’s B-Money, in which computational puzzles and a decentralized consensus were used as an idea of creating money.
Afterwards, in 2005, the idea of reusable proofs of work came about by Hal Finney, but once again, it faced the issue of relying on trusted computing, which was the same problem as Chaumian Binding. Finally, in 2009, Satoshi Nakamoto enacted “proof of work” where a consensus algorithm for overseeing ownership through a public key was used to oversee who owns coins.
The concept of “proof of work” was transformative for cryptocurrency, as it solved two problems that were being dealt with. This Proof of Work allowed for a consensus algorithm that was straightforward and functional, where it was cooperatively agreed upon a group of canonical updates to the state of the Bitcoin ledger, by usage of nodes in the network.
The next problem solved by Proof of Work was it prevented Sybil attacks while concurrently providing a method for allowing at no cost entry into the consensus process, solving who gets to persuade the consensus. It is done by usage of a monetary barrier- the weight of a solitary node in the consensus voting process is directly proportional to the commuting power that the node brings.
Subsequently, “Proof of Stake”, which was an alternative method, was proposed. With Proof of Stake, the mass of the node is calculated as being comparable to its financial assets and not algorithmic resources. Both approaches can be used to function as the backbone of cryptocurrency.
These Proofs of Work or Stake are essential to cryptocurrency, serving as its backbone. The concept of Proof of Work was a major advancement in cryptocurrency and should be acknowledged as such. Do you feel that Proof of Work provides a simple and moderatively effective consensus algorithm? What are your thoughts on the development leading up to Satoshi Nakamoto’s Proof of work? Let us know in the comments!
