Thread by @FrancescoCiull4

Ethereum Proof of Work thread.

Consensus (Key Concept): the fault-tolerant mechanism used to agree on account balances and the order of transactions.

The current consensus mechanism used by the Ethereum blockchain is proof of work.

Let's see the key concepts and pros/cons.

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📃Table of Contents

- Intro
- What is PoW
- PoW and Mining
- The work in PoW
- PoW and security
- 51% Rule
- PoW Finality
- PoW Energy USage
- Pow Pros
- PoW Cons

Intro

Ethereum uses a consensus protocol called Proof-of-work (PoW).

This allows the nodes of the Ethereum network to:
- agree on the state of the recorded info in the blockchain
- prevents some economic attacks.

In the future, it will be replaced with Proof-of-Stack.

What is PoW

PoW allows the network to come to a consensus, or agree on account balances and the order of transactions.

This:
- prevents users from double-spending
- makes the chain hard to manipulate.

PoW & mining

PoW: an algorithm that sets difficulty/rules for the work miners do.

Mining: the act of adding valid blocks to the chain.

The chain's length helps to:
- follow the correct chain.
- understand the state.

More work done > the chain is longer > more state's certain

PoW & Work

Miners make a race of trial & error to find the block's nonce.

A dataset is repeatedly put. You can get it by downloading & running the full chain.

The hash target is easy to verify, hard to compute.

If a transaction is different, the hash is different => FRAUD.

PoW & Security

Goal: extend the chain and have a single source of truth.

Miners are incentivized to work on the main chain

Users always choose the longest chain.

It's super hard to:
- create new blocks that erase transactions
- create fake blocks
- maintain another chain

The 51% Rule

A malicious miner would need to solve the block nonce faster than everyone else.

To create malicious valid blocks, you need 51%+ network mining power to beat everyone else.

This would need a lot of computing power!
The energy spent could be higher than the gain!

PoW economics

PoW is responsible for:
- issuing new currency in the system
- incentivizing miners.

Miners who create a block get rewarded with 2 ETH and all the block's transaction fees.

Uncle blocks: valid blocks created nearly at the same time. A miner gets 1.75 ETH for it.

Finality 1/2

A transaction has finality when it's part of a block that can't change.

Two valid blocks can get mined at the same time, creating a temp fork.

Eventually, one of the chains will become the accepted chain after a subsequent block has been added, making it longer.

Finality 2/2

Finality is the time to wait before considering a transaction irreversible.

Recommended time: 6 blocks or 1 minute.

After 6 blocks, you can say that the transaction was successful.

This timing doesn't include the transaction wait times picked up by a miner.

PoW Energy Usage

PoW requires a lot of energy to keep the network safe.

For Ethereum, it's currently ~73.2 TWh annually (the amount of a mid-size European country)

This could change with the switch to Proof of Stake.

PoW Pros

✅neutral: No ETH is needed to start and block rewards allow you to go from 0ETH to a positive balance.

✅consensus mechanism tried and tested that worked for many years.

✅pow it's relatively easy to implement compared to proof of stack.

PoW Cons

❌uses up so much energy: bad for the environment.

❌big investment to start mining.

❌mining pools could dominate the game, leading to centralization & security risks.

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