Assets, Bitcoin

Why Is Proof of Work Required for Bitcoin?

Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.

Bitcoin is unique in that there are a finite number of them: 21 million.

Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services.

As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.[42].

Bitcoin is often referred to as the first cryptocurrency, although prior systems existed. Bitcoin is more correctly described as the first decentralized digital currency.

NOTE: WARNING: Proof of Work is required for Bitcoin to ensure that the blockchain is secure from malicious actors and that the network remains decentralized. Without it, Bitcoin would be vulnerable to attacks such as double-spending and 51% attacks, which could lead to a loss of trust in the network. It is important for users to understand the implications of not having proof of work before engaging in any Bitcoin transactions.

It is the largest of its kind in terms of total market value.

Bitcoin is pseudonymous, meaning that funds are not tied to real-world entities but rather bitcoin addresses. Owners of bitcoin addresses are not explicitly identified, but all transactions on the blockchain are public. In addition, transactions can be linked to individuals and companies through “idioms of use” (e.g.

, transactions that spend coins from multiple inputs indicate that the inputs may have a common owner) and corroborating public transaction data with known information on owners of certain addresses.[43] Additionally, bitcoin exchanges, where bitcoins are traded for traditional currencies, may be required by law to collect personal information.[44].

To lower the costs, bitcoin miners have set up in places like Iceland where geothermal energy is cheap and cooling Arctic air is free.[45] Bitcoin miners are known to use hydroelectric power in Tibet, Quebec, Washington (state), and Austria to reduce electricity costs.

[42][46] Miners are attracted to suppliers such as Hydro Quebec that have energy surpluses.[47] According to Politico, even technology giants like Microsoft and Alibaba have expressed interest in blockchain technology due largely to its potential for reducing costs by streamlining supply chains.[48].

Previous ArticleNext Article