# Secret of Bitcoin II : Proof of Work ## Review ## In previous article Secret of Bitcoin I, I have explained details of bitcoin transaction. Now I am going to explain why bitcoin technology can support transactions in such great volume--mining and proof of work. ## Outline ## Review Node Operator and Hashrate Operator Hashrate and Security Game of Nodes Conclusion ## Node Operator and Hashrate Operator ## Bitcoin mining is an expensive market signal. To make it more clear, we will discuss bitcoin mining in two parts: Node Operator and Hashrate Operator. There are a number of Node Operators which compete and cooperate with each other. Node Operators use different competitive strategies to compete for bookkeeping rights by operating nodes, and let the remaining Node Operators recognize their bookkeeping results. Node Operators also provide value-added services for different types of customers to obtain profits. Node Operators attract more Hashrate Operators by displaying their earning data. Node Operators and Hashrate Operators can play the same role. However, for Hashrate Operators, they focus on the unit hashrate, where the hashrate spreads and using block header template provided by Node Operator to obtain higher profit. ## Hashrate and Security ## Hashrate is not secure itself, because hashrate continues to grow. We can easily copy accumulative proof of work from the beginning of bitcoin to the recent (the cumulative workload of the last three years accounts for over half of the total number of bitcoin in 11 years). The security of bitcoin comes from the publicity of its accumulated proof of work, which makes malicious attacks related to the proof of work be detected by participants at a very low cost. Proof of work in bitcoin is a system which can support Node Operators to reorganize themselves with flexibility after nodes detected being attacked. The history of bitcoin is the process of emergence and demise of Node Operators. However, a single node represents the function of entire bitcoin in front of users. Users get their perception of the entire bitcoin network from the perspective of different Node Operators. Hashrate Operators don’t share hashrate information with each other. Node Operators cooperate with Hashrate Operators and release an asymmetric proof-of-work signal. The signal is not easy to produce while it can be verified at an extra low cost. Bitcoin node that has massive investment of network connectivity launches the attack. Expensive equipment and long-term stable electricity contract make bitcoin nodes like this (Node Operator and Hashrate Operator) not attack without revealing themselves. In the infinite games among bitcoin Node Operators, we compare different versions of information to detect these attacks, and finally make the attacks not happen silently within a limited time period. ## Game of nodes ## Proof of work, an unforgeable signal system for participants, is implemented to encourage honest behavior. This system requires certain sunk costs, so if this behavior can be used to create other value, it will allow participants to undermine sunk costs through hedging, and ultimately lead to the failure of the signal system. Currently, multi-chain games share the same algorithm on bitcoin chain. In my opinion, the system will not be stable. We cost much in proof of work, but if the number of transactions that can be processed is extremely limited, it will be a great waste of resources. Therefore, bitcoin needs proof of work signal to support massive transactions. Volume of transactions increases and cost of proof of work for per transaction reduces. Merkle tree structure used in bitcoin cuts down effective proof cost of transaction. For users who want to verify transactions, they only need to check the block header data and Merkle proof of each transaction. Users should believe that the number of dishonest nodes is smaller than half of the whole nodes. And attack behavior will be dealt with corresponding measures by proof of work signal. Under such assumptions, the system will be self-driven and error correcting. Node Operators will monitor, expose even fight against any violations of established rules through competitions and cooperation. ## Conclusion ## Therefore, proof of work for bitcoin is an indispensable measure which needs exclusiveness cost and strengthens the system. The relatively fixed and limited cost will account very small part in the all transaction cost after being shared by a large number of transactions.