Proof of Work or PoW is the first consensus algorithm that appeared to secure transactions of many cryptocurrencies, including popular cryptocurrencies such as Bitcoin and Ethereum.
Proof of Work has been around since pre-cryptocurrency times, and it is still relevant in some transactions, especially as it relates to cryptocurrencies.
Most digital currencies have a central authority that tracks each user and the amount of money they have, but cryptocurrencies like Bitcoin have no one in charge of transactions (all transactions are done while keeping users anonymous). This is where Proof-of-Work comes to the rescue. Proof of Work is necessary for a digital currency to work without a central authority managing transactions.
Proof of Work is a proven consensus mechanism used to validate network participants, called miners, who compute the correct codes, called hashes, to verify Bitcoin transactions and add the next block to the blockchain.
Pow can achieve this by having other participants in the transaction network validate the required amount of processing power used by the miner who is credited with calculating a valid hash.
Proof of Work is a verified consensus mechanism that is used to confirm network participants, called miners, that calculate valid alphanumeric codes, called hashes to verify Bitcoin transactions, and add the next block to the blockchain. Pow is able to get this done by having other participants in the transaction network to verify the required amount of computing power that was used by the miner that is credited with calculating the valid hash.
To keep things simple, Proof of Work works on a blockchain. Every cryptocurrency transaction conducted is usually written into a block, which is then further linked to a chain that manages and records all conducted transactions in a secure, decentralized technology called blockchain, with a timestamp.
Each cryptocurrency coin has its own blockchain keeping records of transactions and is in a public mode of view. The blockchain for Bitcoin doesn’t work for Ethereum blockchain and vice versa. You might wonder why people have to spend their time validating Blockchain transactions. It’s time-consuming on one end and it isn’t on the other. Blockchain is no doubt highly complex, in its technical process, but its end result is a digital ledger of cryptocurrency transactions that’s quite complex for hackers to tamper with.
Proof of Work and Proof of Stake in Cryptocurrency
These two algorithms are widely used to verify and validate transactions before adding each of them to the blockchain. And Proof of Work has been around for a long time, while Proof of Stake is relatively new. Every cryptocurrency uses either Proof of Work or Proof of Stake to verify and validate its transactions.
Proof-of-work in cryptocurrency is a way to verify transactions that work on Blockchain. It requires a computer participating in a distributed network mechanism to solve and verify a Blockchain algorithm, which is then added to the Blockchain ledger.
Each computer participating in the distributed network of the mechanism that solves this algorithm usually receives a small reward in cryptocurrency for each successfully completed task. Undoubtedly, this form of proof-of-work verification is usually exhausting and requires a lot of energy (electricity), but its end result and level of security make it a reliable and trusted means of verification.
Without any of the verification mechanisms it is impossible to add verified new blocks to blockchain. Proof-of-work is a necessary part of the cryptocurrency transaction when adding new and verified blocks to the (Bitcoin) blockchain. BBlocks are created by miners when they successfully solve the puzzle that Proof of Work automatically creates when the transaction is initiated. Each time a miner successfully completes the task, a new block is accepted by the mechanized network. This usually happens every 10 minutes.
The term work originally means solving highly complex math problems, while proof in this term simply means the solution to the problem. Computers around the world that connect to the network as miners try to solve these complex mathematical problems from the blockchain (proof-of-work) as quickly as possible, competing against each other to solve the puzzle . Thereby earning the right to verify the next block of cryptocurrency transactions. The miner (i.e., computer) on the network who gets the right to verify the block on the network receives a reward, which is paid in cryptocurrency. This cycle continues with every transaction that passes through the Proof of Work network.
In a Proof of Work network, it is extremely difficult to change any aspect of the blockchain because such a change would require the miner to re-mine all subsequent blocks, made possible by the expensive/high cost of its hardware. In addition, it is difficult for a user or pool of proof of work users to monopolize the computing power of a mechanized network because the hardware and power required to perform hash functions is expensive.
The hash function in this task cannot be undone or redone in any form. This means that the hash value cannot be used to figure out the source data (thereby preserving the anonymity that cryptocurrency guarantees). A hash value in cryptocurrency is a fingerprint that provides authentication and ensures that there is no tampering in transmitted data that has already been processed by the network or verified by a mechanized network. Each hash value contains information about all previous transactions of the network.
A hash value in a cryptocurrency network must always contain a certain number of zero bits. If a hash meets the complexity criteria of the network, it is broadcast to other miners in the network (each computer participating in the proof of work is called a miner). The miners generate many hashes until they find one that meets the required criteria. This repetitive verification process is known as mining, and it is one of the reasons why proof of work requires so much energy. For every newly generated hash that appears on a crypto network, it is checked against the current complexity in that closed network.
Proof of Work: how it works
Proof of Work is a method of verifying and tracking the creation of new cryptocurrencies and transactions that work on a cryptocurrency blockchain. Some cryptocurrencies, like Bitcoin and Ethereum, rely on proof of work algorithms to help solve their transaction verification respectively on their crypto networks.
Proof of Work is widely known with cryptocurrency and this happens to be because the mechanised verification network is mostly associated with Bitcoin, since it was made known publicly. Bitcoin creator Satoshi Nakamoto invented Proof of Work in Bitcoin blockchain in order to have its transaction verified anonymously thereby maintaining the main aim of the cryptocurrency innovation.
However, the concept of proof-of-work has existed in the world of computer technology since at least the early 1990s, and the term “proof-of-work” is thought to have first appeared in an article by computer scientists Ari Jewels and Marcus Jacobsson in 1999.
In 1997, Adma Black, a pioneer of early digital assets, invented Hashcash, a similar system on which Bitcoin founder Nakamoto based much of the cryptocurrency’s proof-of-work mechanism. Hashcash is reportedly a countermeasure against denial of service that was specifically developed by Adam Black in 1997.
Nakamoto was able to stipulate proof-of-work as a mandatory means of verification, which ensures that it becomes difficult to hack the blockchain as new blocks are added to the network. It is also important to know that for every advantage there is always a disadvantage, but proof-of-work has only a few disadvantages.
Disadvantages of Proof of work
- Consumes a significant amount of energy, which usually results in significant costs.
- In most cases, Proof of work requires expensive equipment in order to get rewards for solving math problems.
- Individual miners find it quite difficult to work on tasks.
Benefits of Proof of work
- It is extremely secure, Proof of work transactions are secure. Proof of work has worked very well for over 10 years.
- Miners are always rewarded in cryptocurrency for each task, allowing for new transactions.
- It is widely used and recognized among cryptocurrencies.
In addition to bitcoin, some other well-known cryptocurrencies based on the bitcoin blockchain also use proof-of-work to verify transactions, examples of such cryptocurrencies are Dogecoin, Bitcoin Gold, Litecoin, Bitcoin Cash and some others.
There are other cryptocurrencies not based on the Bitcoin blockchain that currently also use a proof-of-work mechanized network to verify transactions, these include Ethereum, Siacoin, Kadena, Raven Coin and some other well-known cryptocurrencies.
Despite the first-class security and ease of use of Proof of work for cryptocurrencies, there is another consensus mechanism widely known and accepted among cryptoinnovators, known as proof of stake, which is also widely used in cryptocurrencies.
Ethereum is reportedly planning to switch to proof of stake from proof of work. The reason why proof of stake is a good copy of proof of work is that it reduces the need to invest in high-performance mining equipment, as well as the energy associated with using that equipment.
A quick comparison between Proof of Work and Proof of Stake
- Regarding the validation process: in Proof of Work, miners (participating computers) are only required to verify blocks using their processing power to perform any task, thus giving preference to those with more/higher processing power.
- It is easier for anyone to use computing power to follow the Proof of Work protocol for its cryptocurrency mining activities, even with little or no cryptocurrency balance. For Proof of Stake, in order to participate in its activities, there have to be more resources and a cryptocurrency balance to have a chance of participating in the network task and earning a reward.
- It is important to know that in the Proof of Stake systems, miners are replaced with validators. There is no mining or miners involved and there are no races to guess hashes in its network. Instead, proof of stake users are randomly selected and if they’re picked, they must propose or forge a block. If the block is valid, they’ll receive a crypto reward made up of the fees from the block’s transactions.
It is also notable to know that while Proof of stake is relatively new, it has an edge of some kind of benefits over Proof of Work. One of the most notable benefits is the smaller carbon footprint, for Proof of stake, there’s no need for high-powered mining farms unlike proof of work. The electricity consumed during proof of stake is only a fraction of what is consumed during the operations of Proof of work.
Given the high level of technology in today’s world, cryptocurrencies undoubtedly need Proof of Work to remain relevant and meet the needs of their users, as they are largely decentralized and designed to operate as a peer-to-peer service.
Blockchain cryptocurrency networks require some way to achieve consensus and security, and Proof of Work provides a solution that works hand-in-hand with the decentralized purpose of cryptocurrency. Proof of Work is a verification method that makes it too resource-intensive to try to outrun the network. Without network proof-of-work or other proof mechanisms, the network and cryptocurrency data stored on the blockchain becomes vulnerable to attack or theft.
In terms of security and data authenticity, the Proof of Work network mechanism is far superior to proof of stake. This is because in Proof of work, data is linked to a verified history of human choice, which cannot maneuver through a system that verifies each individual transaction. The system works with 0% trust, and 100% of the mechanism’s transactions are verified and recorded by network participants in the public ledger.
Without a doubt, this is a highly trusted consensus mechanism that has been able to stand the test of time and remain relevant. After all, over time, the PoW network becomes more and more complex, to the point where it becomes unbreakable, as its network is constantly monitored by its participants (miners).
Proof of Work has stood the test of time, and it is made possible by the Bitcoin network. Over the past 13 years, the Bitcoin network has never been hacked or compromised in any way or form. It is the most powerful network in the world and has stood the test of time in terms of authenticity, reliability and network security.
Proof-of-work is a superior system because it has a fair, secure mechanism that provides incentives consistent with the blockchain network’s goal of securing every transaction while maintaining its decentralized function. Once completed, a transaction can never be undone or modified.
Proof of Work’s energy consumption has also been significantly optimized over the past few years, and it now uses renewable energy or energy that would otherwise be wasted for mining.
The Proof of Work consensus algorithm in Bitcoin and other cryptocurrency networks has eliminated the need for users to trust a traditional bank. These days, cryptocurrencies have taken over the conventional traditional banking system and charging fees for sending transactions. Instead of storing transactions in one central location, such as a bank, transactions are conducted on a public network for all to see, while maintaining their encryption.