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Why did Satoshi Nakamoto prefer Bitcoin mining and not another system?

Why did Satoshi Nakamoto prefer Bitcoin mining and not another system?

Key facts:
  • PoW mining encourages and rewards the honest actions of Bitcoin nodes.

  • The more the network grows, the more difficult it becomes to attack it.

The proof of work or proof of work (PoW) is the consensus algorithm that the Bitcoin network uses to add new blocks with transactions to the chain. Although its invention dates back even to the last century, this mechanism became more famous thanks to Bitcoin, whose white paper was published on October 31, 2008.

The fundamental premise of proof of work is that one of the parties to a transaction must certify that it made a computational effort verifiable to record information on a network. In this way, there is collaboration and control between peers with pre-established rewards that encourage honest behavior by all.

4 PoW features according to Satoshi Nakamoto

In the White book of Bitcoin, the technical document that describes the operation of the network. In addition, Satoshi Nakamoto wrote numerous texts on forums and emails that were collected by Phil Champagne at Satoshi’s book. They give more details of why that consensus algorithm was chosen.

Currently, it is common to attend various debates about the convenience of PoW versus the proof of stake (Proof of Stake or PoS). Nevertheless, at the time of Bitcoin’s creation, PoW was the only one of these two methods that existed.

Therefore, the following enumeration should be interpreted (as originally intended) as a description of PoW and not as an argument or comparison with another mechanism.

• Participation is voluntary, but miners are incentivized to do well to earn financial rewards

The strategy of PoW operation in Bitcoin aims to promote the honest participation of its mining nodes. For it, it is sought that the rewards for doing well are greater than those of a possible attack:

“The incentive can help encourage nodes to stay honest. If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back their payments, or using it to generate new coins. He should find it more profitable to play by the rules, such rules as favor him with more new coins than all others combined, than to undermine the system and the validity of his own wealth.”

Satoshi Nakamoto, creator of Bitcoin.

In Satoshi’s book, one more explanation of the creator of Bitcoin on this point is compiled:

“Even if a bad guy will overwhelm the power of the network, it’s not like he’s going to get rich instantly. All he can do is get back the money he himself has spent, like bouncing a check. To take advantage of it, he should buy something from a merchant, wait for the shipment, and at that moment use the power of it and try to recover the money from it. I don’t think he could make as much money from that tactic as he would from generating bitcoins. With such a large farm of infected machines, he could generate more bitcoins than all other miners combined.”

Satoshi Nakamoto, creator of Bitcoin.

Ultimately, Bitcoin will hold its value only if it works properly. If this condition is not met, the value of the system would be affected, so none of the miners would benefit.

Annual energy consumption measured in TW/h of Bitcoin compared to the video game industry, gold mining and paper production. Font: Arcane Research.

What are the malicious actions that miners can carry out? Some alternatives include attempting a double spend, voiding or preventing certain transactions from being confirmed, or making it difficult for other miners to validate blocks.

• As the chain grows, it becomes more unlikely that an attacker will get the hashrate to create a longer version

If a miner intends to alter a past block on the Bitcoin network, they must not only modify that previous block, but all subsequent ones as well. This implies that, the more the blockchain grows, the more secure it isbecause it demands more and more computational effort to reconstruct it.

“If most of the CPU power is controlled by honest nodes, the honest chain will grow faster and outperform any competing chain. To modify a block from the past, an attacker would have to redo the block’s proof of work and all blocks after it and then catch up with and beat the work of honest nodes.”

Satoshi Nakamoto, creator of Bitcoin.

• Decision making is set to 1 CPU = 1 vote

In addition to allowing the creation and validation of blocks on the network, the proof of work is also a mechanism that regulates the voting of the nodes when changing the protocol. This has been evidenced in processes such as the Taproot update, whose acceptance by miners was informed progressively in CriptoNoticias in 2021.

This method is more effective than assigning one vote per IP, says Satoshi Nakamoto, since in the latter the network “could be subverted by anyone capable of assigning many IP addresses.”

“Proof of work is essentially one-CPU-one-vote. Majority decision is represented by the longest chain, which has the most proof-of-work effort invested in it..

Satoshi Nakamoto, Bitcoin white paper.

• Nodes can be disconnected without affecting the network (difficulty adjusts automatically)

All the factors mentioned above conclude that Bitcoin becomes a secure network and difficult to modify by a malicious actor. To this is added one more characteristic that contributes to its resilience in the face of any eventuality, and that is that a disconnection of a number of nodes would not jeopardize its operation.

“Nodes can leave and rejoin the network at will, accepting the proof-of-work chain as proof of what happened while they were away.”

Satoshi Nakamoto, creator of Bitcoin.

The circumstance that there are fewer miners working does not endanger the functioning of Bitcoin, since the difficulty of the network is adjusted based on the average time it is taking to create them. This means that if miners in one country were to go offline for whatever reason, the network alone would lower the difficulty so that the rest of the miners could keep up despite the drop in total hashrate.

“A network of miners that act as minters, accountants and regulators of the system”

In Satoshi’s bookPaul Champagne describes Bitcoin mining nodes as “volunteers from all over the world who offer themselves to fulfill this task”, referring to the duty to mint bitcoins, keep accounts in the network and regulate the system.

The PoW mechanism, says the author, “embodies the inverse of the tragedy of the commons.” With that phrase he means that, instead of the (bad) actions of one harming everyone, in Bitcoin the good deeds of all miners benefit the rest.

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