Rewards for Miners
Payment in bitcoin is the reward for mining a block. Not only does mining ensure the integrity of the transaction ledger, but it also allows for the introduction of additional currency into the network. When a miner wins the block generation lottery, new bitcoins are created and "deposited" to the miner's own address. With a new lottery every ten minutes, the reward for generating a single successful block can be worth tens of thousands of dollars. This is a multibillion-dollar industry.
It's effectively impossible for anyone to change records encoded in the network due to the difficulty of mining a new block. Given the world's processing power by cost, the only way to change history is to rebuild every block for all time, which isn't physically conceivable on the bitcoin blockchain. Furthermore, because there is a financial incentive for participating in transaction verification, a global network of computers is competing for the opportunity to protect all transactions. Because the miners are compensated in Bitcoin, they have a financial incentive to maintain the system's integrity.
Distributed Autonomous Organization (DAO)
Some of the Ethereum (cryptocurrency network) founders had a foresightful idea: could you construct an organization that is mainly run autonomously if you could codify a sophisticated enough smart contract? Any interaction between the organization and individuals would be governed by this contract, effectively reducing the organization to a set of rules, a pool of currency, and a governing body whose governors were elected by shareholders, with actions limited to those stated explicitly in the contract. By investing money into the system and executing a public smart contract, anyone can become a stakeholder. Any disbursement of funds for work would require governors' permission, and such executives might be dismissed or changed at any moment by a shareholder vote.
This enormous public offering resembled the type of initial public offering (IPO) of stock that you could find on a stock exchange like NASDAQ. This type of public crowdfunding of a blockchain-based business became known as an initial coin offering (ICO) since your ownership in the company takes the form of tokens or coins on the Ethereum network rather than stock certificates.
The DAO ICO was a thrilling event that signalled a new funding model as well as a new business paradigm. The DAO received 11.5 million ETH from over 11,000 unique investors, which was worth $150 million at the time.
In the end, the DAO was nothing more than an exercise in flawless bureaucracy. Nobody was above the law, yet there was no actual authority to turn to if things went wrong. Honest disputes can be handled by the courts in a traditional contract, but what recourse do you have against a conceptual error in a contract that is publicly executable and irreversible? The DAO's underlying flaw was a logical flaw, not a technological or software one. Before the community was able to stop the bleeding, a user discovered a weakness in the DAO contract and drained the account of roughly $50 million US. Many people are hesitant to label this a hack or a theft because the perpetrator's activities were not so obvious. He or she did not violate any of the system's intended rules; instead, he or she outsmarted the thousands of others who had invested in the DAO account. What the user performed was totally within the contract's intended parameters.
The core Ethereum developers chose to fork the blockchain and return funds to investors after a quick community debate and vote on what to do next. This fork resulted in the creation of two currencies: Ethereum (ETH) for the majority, and Ethereum Classic (ETC) for those who believed that the blockchain's integrity was more essential than $50 million. Ironically, a blockchain that was built to avoid forks ended up forking.
While the advantages of a blockchain architecture are numerous for some of the use cases we've discussed as well as many others, it's difficult to argue that DLTs based on proof of work are environmentally friendly. In 2018, completing a single transaction used the same amount of energy and power as approximately twenty-five families in the United States for a day. Based on the current rate of Bitcoin transactions, this is equal to the entire country of Austria's energy consumption. In essence, the lottery approach makes it tough for someone to manufacture a block, theoretically giving everyone a fair shot at generating the next one, based on how much electricity they're prepared to burn statistically. However, there are additional methods for generating new blocks known as consensus protocols.
Proof of Stake (PoS) is the most popular alternative, and it rewards individuals who are prepared to put the most stake (aka money) into the election system. According to the argument, those who stand to lose the most are more likely to safeguard the system's integrity. You will be penalized financially if you behave improperly. What is regarded "bad" varies on the institution, although voting against the majority is generally considered undesirable. The set of circumstances that punish bad actors in Casper, Ethereum's PoS system, is known as slasher. Then there's Proof of Authority (PoA), which adds a political twist to PoS by granting you blessed authority and the ability to vote in exchange for stake and good behavior.
Acting badly, like in PoS, results in the loss of stake as well as demotion from blessed authority. Proof of Elapsed Time (PoET) is a form of leader election championed by Intel, in which candidates attempt to solve secure puzzles in a set amount of time to establish their merit. Solving those puzzles necessitates the use of customized execution environments that can be trusted. These are made by Intel in a chip format known as SGX. Other proofs include Proof of Activity, Proof of Burn, and Proof of Replication, among others. While it is still too early to predict which, if any, will win, there is a lot of effort being done in the sector to free blockchain from its dependence on electricity