1
00:00:00,940 --> 00:00:05,410
At this section, we're going to talk about
a technique called proof of stake mining

2
00:00:05,410 --> 00:00:09,000
puzzles, and a variety of related
techniques, which all together I'll call

3
00:00:09,000 --> 00:00:12,250
virtual mining, because they don't
involve any computational work at all.

4
00:00:14,030 --> 00:00:15,100
Now, the motivation for

5
00:00:15,100 --> 00:00:19,050
this is that Bitcoin mining seems
to have an unnecessary step.

6
00:00:20,100 --> 00:00:24,220
If you look at the ecosystem
of Bitcoin mining economics,

7
00:00:24,220 --> 00:00:28,110
Bitcoin miners earn monetary
rewards in the form of Bitcoins.

8
00:00:28,110 --> 00:00:30,160
They have to spend money buying power and

9
00:00:30,160 --> 00:00:33,130
equipment in order to
operate their mining rigs.

10
00:00:33,130 --> 00:00:36,930
And they use those mining rigs to
find puzzle solutions, which in turn,

11
00:00:36,930 --> 00:00:37,970
give them reward.

12
00:00:39,570 --> 00:00:42,570
So, what would happen if we removed
the step of spending money on

13
00:00:42,570 --> 00:00:43,360
power and equipment?

14
00:00:44,820 --> 00:00:47,400
In this case, you would have something
that looks like the following,

15
00:00:47,400 --> 00:00:49,000
which is what I mean by virtual mining.

16
00:00:50,280 --> 00:00:54,390
Instead of mining with computational
hardware like BitCoin mining rigs,

17
00:00:54,390 --> 00:00:58,140
you could mine just by using the money
that you would've spent on mining rigs

18
00:00:58,140 --> 00:00:59,380
directly within the system.

19
00:01:00,590 --> 00:01:04,950
Think of this as using your money and
sending it to a special address, and

20
00:01:04,950 --> 00:01:09,920
then a winner is chosen in order to have
a mining rewards based on the amount

21
00:01:09,920 --> 00:01:14,270
of money miners have contributed by
sending it to this special address.

22
00:01:15,380 --> 00:01:18,640
Now, it would be possible in a virtual
mining scheme like this to essentially

23
00:01:18,640 --> 00:01:24,673
recreate the same dynamics and reward
structure as in current BitCoin mining.

24
00:01:24,673 --> 00:01:28,620
The only thing that is removed is
the external step of having to

25
00:01:28,620 --> 00:01:30,330
use real power and real hardware.

26
00:01:34,960 --> 00:01:39,040
There are a bunch of potential benefits
to a virtual mining system like this.

27
00:01:39,040 --> 00:01:43,840
One is that it definitely would lower the
overall cost of the BitCoin mining system.

28
00:01:43,840 --> 00:01:47,500
Virtual mining, since it doesn't involve
using any power or manufacturing,

29
00:01:47,500 --> 00:01:50,050
any special hardware,
would have no impact on the environment.

30
00:01:51,070 --> 00:01:54,270
Now you could think of the savings
that would result from this as being

31
00:01:54,270 --> 00:01:57,520
distributed to all of the holders
of coins in this system.

32
00:01:58,740 --> 00:01:59,680
There's another argument,

33
00:01:59,680 --> 00:02:04,920
which is that holders of the Bitcoin
currency are stakeholders in the currency.

34
00:02:04,920 --> 00:02:09,750
They have an incentive to do things
that would benefit the BitCoin currency

35
00:02:09,750 --> 00:02:13,610
system as a whole, because it increases
the value of the coins that they hold.

36
00:02:13,610 --> 00:02:17,840
So this argument is that the very people
who are stakeholders in the currency

37
00:02:17,840 --> 00:02:20,270
have incentives aligned to be
good stewards of the system.

38
00:02:21,450 --> 00:02:23,680
Now because there is now ASICS involved,

39
00:02:23,680 --> 00:02:25,860
there would be no concern
about an ASIC advantage.

40
00:02:25,860 --> 00:02:29,670
So any virtual mining puzzle is
also an ASIC resistant puzzle.

41
00:02:30,790 --> 00:02:33,760
And that's finally an argument
that this approach would reduce

42
00:02:33,760 --> 00:02:37,890
the hazard of 51% attacks,
whereby the network is

43
00:02:37,890 --> 00:02:41,970
dominated by very large miners
with extremely powerful equipment.

44
00:02:41,970 --> 00:02:44,230
Now, let me describe this
argument in a little more detail.

45
00:02:45,850 --> 00:02:49,710
The way the argument works is basically
that the BitCoin economy is smaller than

46
00:02:49,710 --> 00:02:51,920
the overall world economy.

47
00:02:51,920 --> 00:02:55,610
It's possible for an attacker who has a
lot of wealth outside the bit coin network

48
00:02:55,610 --> 00:02:58,950
to be able to acquire very large mining
rigs that they might not be able to

49
00:02:58,950 --> 00:03:02,070
acquire if they could only use their
wealth that's inside the bit coin network.

50
00:03:03,280 --> 00:03:06,680
So to illustrate this,
imagine that there's a wealthy attacker,

51
00:03:06,680 --> 00:03:11,860
like a nation state or just some
really wealthy attacker on the network

52
00:03:11,860 --> 00:03:15,980
who's able to purchase very large
mining equipment that's very powerful.

53
00:03:15,980 --> 00:03:19,670
Now all of their wealth is outside the
system, and they're able to acquire this

54
00:03:19,670 --> 00:03:22,750
mining resources, and then they can
use it to attack the Bitcoin economy.

55
00:03:24,410 --> 00:03:27,800
Now if mining were based on the coins that
were inside the network, then a wealthy

56
00:03:27,800 --> 00:03:31,270
attacker wouldn't be able to go outside
the network and find more mining power.

57
00:03:31,270 --> 00:03:36,120
The only way they could acquire the amount
of virtual mining power they would need to

58
00:03:36,120 --> 00:03:41,700
attack the network would be to buy up
51% of all of the coins in existence.

59
00:03:41,700 --> 00:03:45,790
This would require them to go to BitCoin
exchanges and exchange whatever form of

60
00:03:45,790 --> 00:03:50,110
wealth they already had for wealth
measured in the tokens inside the system.

61
00:03:50,110 --> 00:03:53,400
This would likely raise the price of the
coins within the system while they were

62
00:03:53,400 --> 00:03:54,780
doing so.

63
00:03:54,780 --> 00:03:57,670
It's arguably much more
expensive to acquire

64
00:03:57,670 --> 00:04:01,130
half of the value of the bit
coins than it would be to acquire

65
00:04:02,200 --> 00:04:06,280
mining power that is larger than
half the existing bit coin network.

66
00:04:07,710 --> 00:04:11,904
This provides an extra disincentive
against conducting such a large scale

67
00:04:11,904 --> 00:04:12,443
attack.

68
00:04:14,590 --> 00:04:17,159
Now there are a bunch of
variations of virtual mining, and

69
00:04:17,159 --> 00:04:19,470
I'll describe some of these.

70
00:04:19,470 --> 00:04:22,040
The original one was
called proof-of-stake.

71
00:04:22,040 --> 00:04:26,350
Which assigns to each coin in the system,
a stake value.

72
00:04:26,350 --> 00:04:29,060
And the idea is that this stake
value grows over time for

73
00:04:29,060 --> 00:04:31,970
every coin,
as long as the coin isn't used.

74
00:04:31,970 --> 00:04:35,930
Every time you spend a coin or
make a transaction including a coin or

75
00:04:35,930 --> 00:04:40,460
enter a coin in a mining puzzle
by using the coin to mine,

76
00:04:40,460 --> 00:04:42,350
the stake value for that coin gets reset.

77
00:04:43,950 --> 00:04:46,570
Another alternative is
called Proof-of-Burn, and

78
00:04:46,570 --> 00:04:50,650
in this scenario when you decide to mine
using a coin, you actually have to send it

79
00:04:50,650 --> 00:04:55,120
to an unspendable address, and the coin
essentially Is deleted or gone forever.

80
00:04:55,120 --> 00:04:58,380
On the other hand, you do have a chance
of winning a mining reward, and

81
00:04:58,380 --> 00:05:00,717
then that would replace
the coins that you put in.

82
00:05:02,994 --> 00:05:06,490
Another variation is
called proof-of-deposit.

83
00:05:06,490 --> 00:05:09,830
This involves mining with
your coins by depositing them

84
00:05:09,830 --> 00:05:12,070
in something like a time-locked account.

85
00:05:12,070 --> 00:05:15,160
Where they aren't burned forever, you'll
be able to get them back eventually, but

86
00:05:15,160 --> 00:05:17,630
only after some amount of time has passed.

87
00:05:17,630 --> 00:05:21,300
Effectively by choosing to mine
with your coin in this scheme,

88
00:05:21,300 --> 00:05:24,580
you're losing the opportunity cost
of whatever else you could have

89
00:05:24,580 --> 00:05:26,300
done with your coin instead at that time.

90
00:05:28,040 --> 00:05:33,360
The last variation is proof-of-activity,
and this variation

91
00:05:33,360 --> 00:05:37,020
everyone with a coin is automatically
entered into the mining lottery.

92
00:05:37,020 --> 00:05:39,650
If one of your coins is chosen,
then you're responsible for

93
00:05:39,650 --> 00:05:43,650
choosing the next block, and you have to
respond by creating a signed message about

94
00:05:43,650 --> 00:05:45,950
the block that you choose within
a certain amount of time.

95
00:05:47,370 --> 00:05:51,130
Now virtual mining puzzles like these
are an active area of ongoing research.

96
00:05:51,130 --> 00:05:56,050
And there's a large, open problem
which we don't know the answer to yet.

97
00:05:56,050 --> 00:05:57,760
Which goes like this.

98
00:05:57,760 --> 00:06:02,400
Is there any form of security that you can
only get by having a proof of work system

99
00:06:02,400 --> 00:06:06,770
that involves really burning real
resources, requiring real computational

100
00:06:06,770 --> 00:06:12,850
hardware, and expending real electrical
power in order to find puzzle solutions?

101
00:06:12,850 --> 00:06:16,310
If so, if there is some kind of security
that you can only get by having a proof of

102
00:06:16,310 --> 00:06:20,910
work puzzle and not with virtual mining,
then the apparent waste of

103
00:06:20,910 --> 00:06:24,630
the proof of work system is actually just
the cost of the security that you get.

104
00:06:25,700 --> 00:06:26,330
On the other hand,

105
00:06:26,330 --> 00:06:30,130
if it does turn out that virtual mining
can provide exactly the same security or

106
00:06:30,130 --> 00:06:33,860
more that you can get by having a proof
of work system, then it seems likely that

107
00:06:33,860 --> 00:06:38,540
eventually proof of work systems, because
they're so much more expensive, will

108
00:06:38,540 --> 00:06:43,720
eventually give way in favor of cheaper
alternatives based on virtual mining.

109
00:06:43,720 --> 00:06:45,400
This question is as of yet unanswered.

110
00:06:48,950 --> 00:06:52,300
Let's conclude this lecture by
summarizing some of the things we've just

111
00:06:52,300 --> 00:06:53,680
talked about.

112
00:06:53,680 --> 00:06:57,810
We've discussed a variety of approaches
towards designing alternate Bitcoin

113
00:06:57,810 --> 00:07:01,100
mining puzzles that achieve
a variety of different goals.

114
00:07:01,100 --> 00:07:05,680
These include, preventing ASIC miners from
becoming a consolidated source of power in

115
00:07:05,680 --> 00:07:07,390
the Bitcoin ecosystem.

116
00:07:07,390 --> 00:07:10,110
We've discussed puzzles that
prevent large mining pools from

117
00:07:10,110 --> 00:07:12,500
becoming consolidations of power.

118
00:07:12,500 --> 00:07:15,880
They've also discussed puzzles that
have some intrinsic usefulness

119
00:07:15,880 --> 00:07:19,280
that can help society and reduce waste.

120
00:07:19,280 --> 00:07:22,110
And we've looked at the option of
a mining puzzle that doesn't require any

121
00:07:22,110 --> 00:07:23,540
computational hardware at all.

122
00:07:24,630 --> 00:07:28,130
Now, for now, the best tradeoff
between these puzzles is unclear.

123
00:07:28,130 --> 00:07:30,770
And our speculation about
the future is that, for

124
00:07:30,770 --> 00:07:34,060
the near future, there will be
many alternatives co-existing, and

125
00:07:34,060 --> 00:07:36,990
it will continue to be unclear
exactly which alternative is the best.

126
00:07:40,590 --> 00:07:45,130
Now, in the next lecture, we're going
to talk about Bitcoin as a platform.

127
00:07:45,130 --> 00:07:48,670
This is going to include applications
beyond just the currency that we've seen

128
00:07:48,670 --> 00:07:49,680
so far.

129
00:07:49,680 --> 00:07:53,160
This includes applications like lotteries,
prediction markets,

130
00:07:53,160 --> 00:07:56,226
smart contracts,
financial derivatives, and many more.