blockchainreporter
  • News
    • Altcoins
    • Bitcoin
    • Blockchain
    • Ethereum
    • Adoption
    • NFT
    • DeFi
    • Metaverse
  • Education
  • Glossary
  • Advertise
No Result
View All Result
Bet Now
blockchainreporter
  • News
    • Altcoins
    • Bitcoin
    • Blockchain
    • Ethereum
    • Adoption
    • NFT
    • DeFi
    • Metaverse
  • Education
  • Glossary
  • Advertise
No Result
View All Result
blockchainreporter
Bet Now
No Result
View All Result
Bitcoin
BTC
1d:
7d:
Ethereum
ETH
1d:
7d:
Polkadot
DOT
1d:
7d:
Solana
SOL
1d:
7d:
Ripple
XRP
1d:
7d:
Shiba INU
SHIB
1d:
7d:

Report: Cryptocurrencies Need to Stop Using Proof of Work

Ogwu Emmanuel by Ogwu Emmanuel
January 23, 2019 - 12:00 am
in bitcoin news
0
0
SHARES
0
VIEWS
Share on FacebookShare on Twitter
  • Payment finality using proof-of-work is expensive
  • High transaction fees or mining rewards are required to ensure payment security
  • Bitcoin and altcoins need to depart from Proof-of-work in order to prevent a decline in liquidity, according to some experts

Raphael Auer, a Principal Economist at the Monetary Policy unit of the Bank for International Settlements (BIS) on January 21 released a paper titled, “Beyond the doomsday economics of proof-of-work in cryptocurrencies”, and it focuses on the limitations of virtual currencies like bitcoin that use Proof-of-work (PoW) algorithm for payment finality.

Proof-of-work not best for Bitcoin

Auer’s paper highlights how payments are finalized on the Blockchain using proof-of-work, which he believes to be needlessly expensive in making payments permanent and therefore, confirm blockchain’s immutability.

First of all, the document outlines that these digital assets which have garnered a lot of interest since 2017, thanks to the massive price surge that year, make use of protocols to communicate between transacting participants.

In this case, blockchain is usually updated to reflect all new transactions using the Proof of work algorithm.

According to the paper, Satoshi Nakamoto’s aim for developing Bitcoin was to create a balance between the cost and reward each time the distributed ledger is updated.

While the cost determines if a transaction is processed, the writer notes that the reward is paid to miners for successfully updating the ledger in order to prevent double spending and forgery of transactions.

Proof-of-work poses two major limitations

Nevertheless, this consensus algorithm poses two significant economic limitations which question the efficiency of proof-of-work in validating payments and providing high rewards to miners to ensure payment security.

These limitations in Bitcoin and some altcoins  are a high cost of transactions during payment finality and the inability to generate high miner rewards that will ensure payment security states the report.

Regarding the former, Auer points out that the concept of payment finality involves making it unprofitable to undo transactions once it has been completed, thereby making it impossible for an attacker to orchestrate a 51% attack.

Also, this concept differs from Nakatamo’s view of double spending which can occur if the miner has more control of the computational power and payments are accepted as final speedily.  

The second limitation, in the writer’s opinion, is the system’s operation at less its capacity and user’s incentives to increase transaction fees, which could potentially raise a miner’s income.

As a result, the high income will ensure that the block that is used is well protected.

However, the paper notes that this is not the case given that some users are unwilling to increase the transaction fees, which may also lead to a drop in liquidity shortly.

Therefore, to prevent a decline in liquidity and avert other limitations, Auer suggests that Bitcoin and other cryptoassets powered by PoW need to adopt another consensus algorithm since proof-of-work algo is not sustainable.

Tags: MiningSecurity
ShareTweet
Ogwu Emmanuel

Ogwu Emmanuel

Ogwu is a Nigeria-based blockchain analyst focussing on the regulatory implications of governments in the cryptocurrency industry. He writes regularly for several cryptocurrency-focussed news sites.

Recommended For You

Blockchainreporter Weekly News Roundup

by Umair Younas
February 5, 2023 - 2:29 pm
0
crypto

Blockchainreporter has compiled a bunch of important news from this week covering all happenings related to FTX and other exchanges.

Read more

Binance Resumes Operations in South Korean Crypto Market after Gaining Major Stake in the GOPAX Exchange

by Shayan Chowdhury
February 3, 2023 - 12:01 pm
0
Binance

Crypto exchange giant Binance is set to resume its operations in South Korea after acquiring a major stake in the local exchange GOPAX. 

Read more

Binance Joins Hong Kong Police Department to Confront Cybercrime

by Umair Younas
February 3, 2023 - 9:53 am
0
Binance

The biggest blockchain infrastructure, “Binance” has recently participated in and provided support for a Virtual Asset Investigation Course (VAIC).

Read more

Silvergate in Hot Water: US Fraud Probe over FTX and Alameda Dealings

by Mushu Butt
February 3, 2023 - 6:49 am
0
silvergate

Silvergate faces a fraud probe in the US over suspicions of irregularities in their FTX and Alameda dealings. Get all the latest updates here.

Read more

Crypto Theft: In 2022, Hackers with Ties to North Korea Stole $1.7 Billion

by Kester Odero
February 2, 2023 - 4:23 pm
0
hack

2022 was another bad year in terms of crypto hacks. According to data from Chainalysis, 2022 saw $1.7 billion worth of crypto stolen by the Lazarus.

Read more
Next Post
UK parliament

UK Watchdog FCA Investigating Crypto Assets

PARTNERS LIST

PRESS RELEASE

Game Space Powers Web3 Gaming With the Launch of Player One Tournament, Aligns Partnership with Splinterlands, Gods Unchained and Big Time

by Max Clark
February 3, 2023 - 12:00 pm
0

For Player One Tournament, Game Space will continue to cooperate with more public chains, various gaming guilds, Web3 Infra, Web3...

Metacade presale investment rockets past $5 million as GameFi investors hurry to buy remaining MCADE tokens

by chainwire
February 2, 2023 - 3:38 pm
0

London, United Kingdom, 2nd February, 2023, ChainwireThe Metacade presale is selling out fast with stage 3 coming to a close...

Snowfall Protocol

Joe Biden Reveals Game-Changing Crypto “Roadmap” after $2 Trillion Bitcoin (BTC) and Ethereum (ETH) Crash! Snowfall Protocol (SNW) Still the Top Pick for 2023

by Josh Fernandez
February 2, 2023 - 9:23 am
0

A perennial problem that has dogged the crypto world – and one that Snowfall Protocol (SNW) aims to address –...

Peer Acquires Elite Team of Engineers Behind Zenly’s Popular 3D Maps

by chainwire
February 1, 2023 - 5:44 pm
0

Seattle, Washington, 1st February, 2023, ChainwirePeer today announced the hiring of a specialist team of engineers from Zenly to develop...

BlockchainReporter is a trusted name in the cryptocurrency and blockchain technology news space, keeping its readers abreast of the latest and most significant trends in the industry.

Here at BlockchainReporter, our team of global writers is dedicated to providing price analysis on leading cryptocurrencies and covering the latest developments pertaining to bitcoin news, altcoins news, blockchain news, NFT news and cryptocurrency adoption news from around the world.

News

  • Altcoins
  • Bitcoin
  • Blockchain
  • Ethereum
  • Adoption
  • NFT
  • DeFi
  • Metaverse

Info

  • Education
  • Glossary
  • Market
  • Press Release

Company

  • About Us
  • Terms & Conditions
  • Advertise
  • Sitemap
  • Contact

@2022 – Blockchainreporter.net. All Right Reserved.

No Result
View All Result
  • News
    • Altcoins
    • Bitcoin
    • Blockchain
    • Ethereum
    • Adoption
    • NFT
    • DeFi
    • Metaverse
  • Education
  • Glossary
  • Advertise

@2023 - Blockchainreporter.net. All Right Reserved.