Ethereum: Why Bitcoin’s Proof-of-Work Algorithm Is Inadequate
Bitcoin’s proof-of-work (PoW) algorithm has been widely used for years and is considered secure by many industry experts. However, closer examination shows that this algorithm may not be as efficient as previously thought, especially when it comes to maintaining a relatively even block time distribution.
Current PoW Algorithm
Bitcoin’s current PoW algorithm is based on the SHA-256 hash function, which takes a block header and produces a unique 256-bit fingerprint. The resulting hash is then used as a “difficulty target” that miners must attempt to solve. This process requires significant computational power, energy consumption, and resource usage.
The result of this algorithm is a block time distribution that can be described as sparse. With an average block time of 10 minutes on the Bitcoin network, it is not uncommon to see blocks that are hours or even days apart. This uneven distribution can lead to frustration among users who rely on fast transaction processing and high-frequency trading.
Why lower difficulty hashes may be a better solution
The current PoW algorithm has been criticized for its lack of adaptability, leading to inefficient use of computing resources. However, some experts have proposed alternative algorithms that can provide better performance while maintaining a more even distribution of block times.
One possible solution is the Proof-of-Stake (PoS) algorithm, also known as DeFi (Decentralized Finance). This approach uses a different type of hash function that requires miners to stake a portion of their cryptocurrency holdings instead of using computing power. The resulting “difficulty target” is determined by the amount of coins at stake, which would result in a more even distribution of block times.
A hash chain with a lower difficulty
If we were to imagine an Ethereum-based system where PoW is replaced by PoS, we could consider the following alternative approach:
Instead of using a single hash function with difficulty 12, what if we designed a hash chain with a lower difficulty? For example, we could use a set of six hashes, each corresponding to a different difficulty level (e.g. 0.2, 0.4, 0.6, 1.0, 1.2, and 1.4). These hashes would be used as “difficulty targets” for miners.
To ensure block time consistency, we could implement a mechanism that ensures that each miner’s hash is randomly selected from a set of hashes with lower difficulty. This approach would ensure a more even distribution of blocks over time, reducing the likelihood of excessive concentration of mining power, and promoting healthy competition among miners.
Implementation Considerations
Implementing such an algorithm in Ethereum would require significant changes to the network architecture, including:
- Hash Function Design: The design of the hash function used for PoS plays a critical role in determining the effectiveness of this approach.
- Difficulty Target Management: A mechanism should be established to manage and adjust difficulty targets as they become more or less effective.
- Mining Pool Requirements: Miners should be incentivized to participate in the new system, which could include modifying the network consensus rules or providing additional rewards for successful block times.
Conclusion
While Bitcoin’s current PoW algorithm is effective at maintaining a relatively even distribution of block times, it may not be sufficient for the long-term sustainability and growth of the network. Exploring alternative approaches, such as lower-difficulty hashes or proof-of-stake, could help to make more efficient use of computational resources and potentially create a more flexible and scalable system.