What Is Proof of Work? Blockchain consensus explained

The world is all over blockchain technology as one of the most secure technologies the financial technology industry has ever had. It all started with Bitcoin and other altcoins that leverage the same technology.

But one thing that could quickly confuse you is trying to understand how transaction validation on a blockchain works. Let’s try to figure out what Proof of Work in blockchain is and how it’s related to this process. What is Proof of Work?

Proof of Work explained: What is Proof of Work?

A concise Proof of Work definition would be a system requiring computational effort to deter malicious activities and maintain network integrity.

Proof of Work in cryptocurrency is a consensus protocol that enables blockchain networks that use the protocol to achieve consensus on the validity of transactions on a block. Satoshi Nakamoto introduced it in cryptocurrency when the pseudonymous Bitcoin (BTC) creator proposed the solution in the Bitcoin Whitepaper.

Proof of Work in blockchain is one of the fundamental concepts in understanding the transaction validation process and is what makes Bitcoin and other PoW networks possible.

Ideally, Satoshi, in the whitepaper, proposed a solution to the double-spending problem in the conventional transaction models using a peer-to-peer network. The blockchain network would timestamp transactions by hashing them, and validating them would require Proof-of-Work. The work here involves determining the unique hash, the digital fingerprint for a transaction. The long string of random characters is the proof.

How does Proof of Work work?

Understanding consensus is necessary to understand how Proof-of-Work in cryptocurrency works. In the ordinary sense, consensus refers to an agreement among independent entities. For instance, in an independent democratic country, the citizens hold elections, and each candidate’s votes are counted. The parties then agree or reach a consensus on who will form the government, depending on the number of votes garnered.

Blockchain networks consist of a series of interconnected and independent computers, known as nodes, responsible for securing the network. Therefore, this network of computers uses the Proof-of-Work protocol to agree on a single value that one of the independent entities proposes.

Consensus mechanisms share the goal of securing the blockchain’s immutable ledger by adequately verifying and validating transactions and incentivizing participants. The participants are the network of miners, also known as nodes. They shoulder the burden of securing the network through Proof-of-Work, and only one node can validate a transaction, and then the result is shared with all the other nodes for consensus. 

As a result, the miners race against each other to solve complex mathematical puzzles so that the winning node receives a reward from the newly mined cryptocurrency. The process requires specialized mining hardware with a high computing power known as the hash rate. 

The mining equipment delivering a higher hash rate gives the miners higher chances of becoming validators of the next block. It is highly energy-intensive as the computers have high processing powers and consume substantial electricity. The energy-intensive nature of the Proof-of-Work protocol is one of its features that safeguard blockchain networks.

Energy consumption of Proof of Work

PoW consensus is designed to consume large amounts of power and make it expensive to discourage malicious miners. If a malicious node attempts to attack the network, the miner would have to invest in high-power mining equipment, consume large amounts of electricity, and have nothing to pay off. 

Honest nodes find it worthwhile to invest in the equipment and electricity since they receive a reward that covers the costs and some profit.

On networks like Bitcoin, the energy demand to maintain this security is immense. For instance, Bitcoin mining annually consumes approximately 144 terawatt-hours (TWh) of electricity — comparable to the energy use of entire nations like Malaysia or Sweden. This economic structure ensures network integrity while relying on significant energy consumption to deter potential attackers.

Proof of Work examples

What are Proof of Work examples? As the earliest consensus system, Proof of Work in cryptocurrency is still widely used by different blockchains. It is the consensus used by some of the popular coins in the space, including Bitcoin, Ethereum (prior to its switch to Proof of Stake), Dogecoin, Monero, and Bitcoin Cash.

When transactions occur on the Bitcoin Blockchain, for instance, they pass through security verification before they are grouped into a block for mining. A miner then uses the Bitcoin network’s Proof-of-Work algorithm, SHA-256, to generate the target hash for the block, usually a string of 64 characters. The miners are in a race to become the first to create the hash, which typically should be less than or equal to the target hash. The winning node gets to add the block of transactions to the blockchain and receives rewards, a portion of the newly minted BTC, and transaction fees.

The Bitcoins mining algorithm adds a new block of transactions every 10 minutes. The networks ensure this pace remains by adjusting the difficulty of cracking the hash depending on how quickly the nodes manage to add a block. Bitcoin’s fixed total supply is 21 million BTC. As of this writing, over 19.9 million Bitcoins are already mined, leaving approximately 1 million coins for mining. Miners will continue minting the remaining coins, after which they will keep receiving rewards in transaction fees for maintaining the network’s security.

Advantages of Proof of Work

Proof of Work stands out for its ability to secure networks by requiring a significant investment in resources. Rather than just being about solving puzzles, PoW turns transaction validation into a competitive and resource-intensive process. Since miners must invest in costly equipment and resources, trying to tamper with the system becomes too expensive. This naturally encourages legitimate mining efforts, contributing to a secure and decentralized network. 

While PoW has proven its reliability, it’s not without its criticisms — especially in terms of energy consumption, which has led some to explore alternatives like Proof of Stake. Unlike PoW, PoS selects validators based on the amount of cryptocurrency they hold and are willing to lock up as collateral, reducing the need for energy-intensive mining.

While PoS is more energy-efficient, it may be less secure than PoW, as it relies on participants having a financial incentive to act honestly. In short, PoW excels in security and decentralization, but PoS offers a greener, though potentially less secure, alternative.

Is Proof of Work secure?

As we mentioned earlier, Proof of Work is considered one of the most secure consensus mechanisms in cryptocurrency. Its security stems from the fact that it requires miners to invest substantial computational resources, making any attempt to manipulate the network prohibitively expensive.

The process of solving challenging puzzles to validate transactions helps miners maintain the integrity of the blockchain. Since this requires significant resources, it’s nearly impossible for malicious actors to make any meaningful impact.

The high energy costs associated with Proof of Work only increase the difficulty for attackers, adding another layer of security. In this way, PoW stands strong as a reliable safeguard against network disruptions.

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