Abstract
Proof-of-Work (PoW), a well-known principle to ration resource access in client-server relations, is about to experience a renaissance as a mechanism to protect the integrity of a global state in distributed transaction systems under decentralized control. Most prominently, the Bitcoin cryptographic currency protocol leverages PoW to (1) prevent double spending and (2) establish scarcity, two essential properties of any electronic currency. This chapter asks the important question whether this approach is generally viable. Citing actual data, it provides a first cut of an answer by estimating the resource requirements, in terms of operating cost and ecological footprint, of a suitably dimensioned PoW infrastructure and comparing them to three attack scenarios. The analysis is inspired by Bitcoin, but generalizes to potential successors, which fix Bitcoin’s technical and economic teething troubles discussed in the literature.
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Notes
- 1.
Ultimately the E-Gold company pled guilty to money laundering and to operating an unlicensed money-transmitting business [39] and was shut down immediately.
- 2.
All assumptions of the analysis are debatable. Therefore we provide the spreadsheet of our estimation online and invite readers to come up with their refined scenarios. It can be accessed via: http://dl.dropbox.com/u/1168860/DoesProofOfWorkPayOff.xlsx
- 3.
This is specific to the Bitcoin system as it currently is. It is also conceivable to design PoW functions that are better aligned with the optimization criteria of microprocessor architectures.
- 4.
The list provided by the IEA (2012) includes an item “hydro” which consists to a large extent of energy produced by pumped storage plants. As electricity stored in these plants has been generated by other means, we exclude this item. We further exclude the items “waste” and “other sources” as their impact on the result is negligible.
- 5.
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Becker, J., Breuker, D., Heide, T., Holler, J., Rauer, H.P., Böhme, R. (2013). Can We Afford Integrity by Proof-of-Work? Scenarios Inspired by the Bitcoin Currency. In: Böhme, R. (eds) The Economics of Information Security and Privacy. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-39498-0_7
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