Proof of Work ( PoW )

What is this “Proof of work” (PoW)?

Even though the concept is older, we have all heard about it since Bitcoin introduced it.

The fundamentals of blockchain are cryptography, peer-to-peer, and consensus protocols.

An easy way to explain what PoW means would be that it is a consensus protocol that validates new transactions, adds them to the blockchain, and also expands the number of new blocks.

What does consensus mean?

Basically, consensus means that everyone is on the same page.

The main advantage of a decentralized consensus protocol compared to a traditional one is that all network participants have access to the records, and all agree on the validity of those records without having a central authority. PoW was initially implemented to avoid the problem of double spending, which meant that PoW had to make sure that the same coin was not used twice in transactions. The natural consensus between the miners solved this problem.

PoW and Mining

PoW and Mining go hand in hand. During the process, the miners, also known as nodes, validate the transactions on the block and release new blocks. To do that, miners use computational power (fig.1) to solve mathematical equations or, better said to solve mathematical riddles. This is more of a guessing game. The miners are going through many riddles until the right one is found.

The difficulty of the mathematical riddles varies according to the speed of new blocks released. Imagine that around four billion combinations must be checked before the right one is found to have an idea of how hard it is to solve a riddle. But, like we just said, If the blocks are released too fast, the riddles get harder, and if the blocks are released too slow, the riddles get easier.

Mining can be easily translated to energy consumption. But, if there is a cost, there is also a reward. The miners are competing with each other to get the golden nonce (the right combination). The miner who finds the correct nonce receives a reward.

Getting an advantage in mining is a game changer. A miner can gain an advantage by bringing extra computational power to get a bigger reward. But if the entire miners’ network increases the computational power, the entire mining process does not become more effective. The reward stays the same. Every ten minutes, a specific reward is released with a new block, and that reward cannot be increased. For Bitcoin, the reward halves every four years until the last Bitcoins are mined.


Fig. 1 Mining equipment / computational power ( HP.com source )

Is PoW the only consensus protocol used for crypto?

The most common protocols are Proof of Work and Proof of Stake. But there are projects build on different protocols like:

  • Proof of Capacity
  • Proof of Activity
  • Proof of Burn
  • Proof of History
  • Proof of Burn.

Pro and Cons of Proof of Work

The most significant advantage that PoW has is the security of the network. A 51% control of the entire network is required for someone to make a change. At the moment, thousands of Bitcoin miners are consuming as much energy as Switzerland. So, taking control of 51% of the entire network is almost impossible.

Although it is almost impossible to attack networks like Bitcoin, other projects were targeted and suffered essential losses. The most significant loss is the credibility of the project.

Now that we mention energy consumption, we get to another disadvantage of PoW. Such a high energy consumption means increased costs. Also, news about environmental pollution is everywhere, even though the miners have changed to green energy equipment because of the mining costs reduction.

Many crypto projects, including some major ones, like Ethereum, are slowly migrating to Proof of Stake, mainly because of the massive energy consumption of the Proof of Work protocol.

Crypto Projects that use PoW

The first one was Bitcoin. There are few others based on bitcoin or forked from it that use PoW as a protocol like Bitcoin Cash, Bitcoin SV, Litecoin, Doge Coin.

Projects like Ethereum, Monero, Ravencoin, Kadena, Sia Coin, even though they are not based on Bitcoin, they still use PoW as a consensus protocol.


Fig 2.   Flow of PoW   ( source  sciencedirect.com )

Bibliography

  • Stakeborg.com
  • Businessinsider.com
  • Sciencedirect.com
  • Hp.com
  • Coinbase.com
  • Cointelegraph.com
  • Investopedia.com
  • profolus.com
  • Nakamotoinstitute.com
  • Bitfury.com
  • Wikipedia.org
  • Blockchain4aid.org
  • Coinrivet.com
  • Bitcoinsuisse.com

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