The Claim That Blockchain Is Secure: Argument Two

Blockchain uses the concept of “proof of work” (PoW). PoW is a popular concept, relied upon by Bitcoin, Litecoin and Ethereum, to name a few. It requires from a computer user wishing to join the network (which would allow them to add a block to the network i.e. to start mining) to first solve a very (but not extremely) complex computational mathematical problem.[1] This problem may relate to producing a hash or it may concern protocols for a denial of service (DoS) attack. Solving a PoW problem requires a huge financial investment in computer power and energy. This is the reason why miners tend to get together in mining pools, which may have an effect on the security of Blockchain (more about this below).

The first transaction to be recorded on a block is called generation transaction. In the case of Bitcoin, the generation transaction contains the reward for the miner(s). In addition, it records the address(es) of the miner(s) who solved the mathematical puzzle leading to the creation of the current block. The Bitcoin algorithm is such that reward starts at 50 Bitcoin but is halved approximately every 4 years. This is known as the “controlled supply” concept.[2] This means that there is no infinite supply of Bitcoin. The reason why this rule has been introduced on the Bitcoin Blockchain is to avoid devaluation and crash of the currency.

[1] The PoW problem should be not too complex but also not too easy. If it is too complex, this will delay the creation of blocks. Making it too easy will undermine the security of the blockchain. At the same time, the solution of the problem has to be easy to check by all participating computers – if not, this would undermine the transparency of the blockchain.

[2] Prableen Bajpai, ‘How Central Banks Control the Supply of Money’ (2017) Investopedia, https://www.investopedia.com/articles/investing/053115/how-central-banks-control-supply-money.asp accessed 20th March 2019.