A Revolutionary Concept
Nakamoto’s vision of creating a P2P Electronic Cash System led to the birth of Bitcoin as a payment system to be used like cash for daily payments. Along with a new digital currency, Bitcoin introduced the first use-case of blockchain technology. This development led to the creation of smart contracts, decentralized finance, and other unprecedented innovations.
Hailed as a revolutionary concept, Bitcoin was branded as the “people’s money.” The digital currency allowed users to break free from the control of banks and traditional financial institutions. As the network grew, cracks began to appear in Bitcoin’s architecture. The currency’s Proof of Work (PoW) consensus mechanism for confirming payments struggled with speed issues, mounting transaction fees, and ballooning resource requirements.
Proof of Work
The consensus protocol is a key component of any blockchain. It determines how securely and quickly blockchain validators reach a consensus on the next block.
Dwork and Naor introduced Proof of Work (PoW) in 1992, but the concept truly gained popularity in 2008 when it was incorporated into the Bitcoin system by Nakamoto. PoW was believed to be employed for inducing good validator (miner) behavior within the blockchain network.
The aim was to create a decentralized ecosystem that promotes ideal competition among miners and allows free entry into the system. To create adequate rewards for validators, Nakamoto specified that participants must solve a cryptographic puzzle to update the blockchain.
Since its incorporation with Bitcoin, The PoW protocol has proven to be a robust system. However, despite being a trusted and secure consensus mechanism, PoW is considered a computation-intensive process
The theory behind this was to make any potential external attack of the blockchain network economically unfeasible
With the increase in Bitcoin’s value3, more validators began to join the network, thus increasing the mining-related energy consumption. For example, a single Bitcoin transaction consumes enough energy to PoWer over nine family homes in the United States for 24 hours.
These issues further exacerbated network delays and protracted the validator agreement process. What started as a trustworthy consensus algorithm turned into a Power-hungry system that compounds energy consumption demands as long as the network keeps growing indefinitely.
These problems make Bitcoin unsustainable and unscalable, driving users away from the blockchain.