The proof-of-work concept was the original innovative idea that allowed decentralized cryptocurrencies to emerge. It allows network nodes to reach consensus on which version of the blockchain should be considered correct. However, since Satoshi implemented it in Bitcoin, a great number of new algorithms have been created, giving birth to numerous cryptocurrencies.
The brief history of all popular proof-of-work algorithms and their peculiarities was covered in the recent Bytecoin blog post by Ray Patterson, titled “The Proof-of-Work in Cryptocurrencies: Brief History.” The overview starts with the prerequisites that led to the invention of the concept and proceeds by explaining the motivation behind and the background of each popular algorithm in the market.
The author argues that the rationale for introducing each new proof of work was to diminish ASIC share, decentralize mining and promote the coin among ordinary PC users. He writes:
“Naturally, we could try to explain it by a common grudge or by a wish to 'make a fast buck': there were forks, pre-mines and pump'n'dumps before Tenebrix. But the arguments provided by supporters of the ‘ASIC-resistant’ functions are rational.”
Patterson explains sophisticated terms and tendencies in a clear and witty manner. The article covers in layman’s language the exact algorithms of a number of popular cryptocurrencies, such as scrypt, X11, Momentum, Primecoin’s prime numbers, CryptoNight and others. It goes into detail about how exactly these proof-of-work functions work, what led to their popularity, and how the mining industry historically responded by providing GPU and ASIC miners for them. The blog post also provides an overview of certain exotic deviations. It says:
“Due to different marketing techniques some SHA-3 finalists became popular as solo-versions. For instance, Keccak itself, being SHA-3. It is quite clear: ‘SHA-2, improved!’ That is, there was no specific concept for ASIC resistance, except the one that developing and starting production takes at least a year. On the other hand, we have a real, brand-new modern standard! A special Skeincoin appeared as well, using (according to its name) Skein algorithm (must have been Bruce Schneier's fans).”
It is yet unclear whether cryptocurrencies based on proof of work can at some point be overtaken by other solutions, such as proof of stake, proof of burn, and others. However, it seems that the market is still mostly following its pioneer, Bitcoin, in the arms race for the hash rate.
- Illustration by Ryan Etter