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Nakamoto says that proof-of-work at https://en.bitcoin.it/wiki/Proof_of_work is used to implement a peer-to-peer distributed timestamp network (mentioned above). The process scans for a value that when hashed, results in a certain numerical expression. The timestamp network must reconcile this value with a block’s hash. CPU power is needed to satisfy the proof-of-work, and the block cannot be changed without redoing the work. Later blocks are chained after it, and to change the block would require redoing all the blocks after it. The language may be technical but the concept is simple. Proof-of-work is what safeguards the blockchain. Nakamoto says that a hash created by a timestamp server is assigned a unique number that is then used to identify the hash in the blockchain. Inherent in this unique number is a math puzzle that a computer must solve before a transaction can happen. Once a correct answer is given, it serves as proof that the specified work has been done. When someone sends an electronic coin, they must take a hash’s unique number and solve an inherent math puzzle. The answer is then passed to the recipient to check if the solution is correct - an important validation step. If the answer is correct, the payment/transaction takes place and adds to the length of the blockchain. If not, the proposed transaction is rejected. Proof-of-work provides one vote per CPU, not by IP address. Otherwise an attacker may allocate several IPs in an attempt to hack the network.
Secondly, the longest chain of blocks at https://en.bitcoin.it/wiki/Block serves as proof that the CPUs invested the greater amount of work in that longer chain. This process secures the blockchain by requiring would-be-attackers to redo the work of the block and all blocks after it (i.e., solve all those math puzzles) and then try to surpass the work of all the honest computers in the network. Nakamoto says that it’d be an extremely difficult task for an attacker to do just that, and that the probability of success diminishes exponentially the more blocks are added to a chain. So how does proof-of-work protect the blockchain? In layman’s terms, honest CPUs in the network solve each hash’s math problem. As these computational puzzles are solved, these blocks are bundled into a chronologically-ordered chain. Thus the term blockchain. This validates to the entire system that all the required “math homework” has been completed. An attacker would have to redo all the completed puzzles and then surpass the work of honest CPUs in order to create a longer chain — a feat that would be extremely unlikely if not impossible. This sequence makes Bitcoin transactions irreversible. Nakamoto points out that honest nodes at https://en.bitcoin.it/wiki/Full_node in the network need to collectively possess more CPU power than an attacker. 5. Network. Nakamoto outlines the steps for running the peer-to-peer network.
1. New transactions are broadcast to all nodes/computers in the network. 2. Each node collects new transactions into a block. 3. Each node works on finding a difficult proof-of-work for its block. 4. When a node finds a proof-of-work, it broadcasts the block to all nodes. 5. Nodes accept the block only if all transactions in it are valid and not already spent. 6. Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash. As mentioned in earlier sections, nodes always consider the longest chain to be the correct one and will work on extending it. This section shows why it’s important to announce transactions to all nodes. It forms the basis for verifying the validity of each transaction as well as each block in the blockchain. As mentioned earlier, each node solves a proof-of-work puzzle and thus always recognizes the longest chain to be the correct version. As time progresses, the blockchain’s record grows and provides assurance to the entire network of its validity. 6. Incentive. The first transaction in a block is a special transaction that starts a new coin owned by the creator of the block. This achieves two things. First, the creation of a new coin rewards nodes/computers to support the network. Second, it’s a way to initially distribute new coins into circulation since there is no central authority to issue them.
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