Proof of Work With External Utilities

TL;DR

This paper extends the analysis of Proof-of-Work to include external rewards for useful computations, developing a theoretical model and showing that such incentives can influence miner behavior and decentralization.

Contribution

It introduces a theoretical framework for miner behavior in Proof-of-Useful-Work with external rewards, analyzing equilibrium and decentralization effects.

Findings

Miners may concentrate useful tasks in a single block for profit optimization.

External rewards can maintain security while reducing costs and environmental impact.

Model supports AI workloads as a viable, eco-friendly alternative for PoW security.

Abstract

Proof-of-Work (PoW) consensus is traditionally analyzed under the assumption that all miners incur similar costs per unit of computational effort. In reality, costs vary due to factors such as regional electricity cost differences and access to specialized hardware. These variations in mining costs become even more pronounced in the emerging paradigm of \emph{Proof-of-Useful-Work} (PoUW), where miners can earn additional \emph{external} rewards by performing beneficial computations, such as Artificial Intelligence (AI) training and inference workloads. Continuing the work of Fiat et al., who investigate equilibrium dynamics of PoW consensus under heterogeneous cost structures due to varying energy costs, we expand their model to also consider external rewards. We develop a theoretical framework to model miner behavior in such conditions and analyze the resulting equilibrium. Our findings suggest that in some cases, miners with access to external incentives will optimize profitability by concentrating their useful tasks in a single block. We also explore the implications of external rewards for decentralization, modeling it as the Shannon entropy of computational effort distribution among participants. Empirical evidence supports many of our assumptions, indicating that AI training and inference workloads, when reused for consensus, can retain security comparable to Bitcoin while dramatically reducing computational costs and environmental waste.