What Is Proof-of-Work?
Proof-of-Work (PoW) is a type of consensus mechanism where new blocks on the blockchain are generated by using computer power to solve mathematical puzzles. Bitcoin makes use of the PoW system.
Hashcash was originally used as a preventive method against email spam. It demands PoW on the email’s content which includes the “To address.” In the process, legitimate emails generate the proof quite easily as opposed to spam emailers. In Bitcoin, hashcash PoWs are required for block generation. PoW for all the data in each specific block is necessary before the block is accepted into the network.
Each network has a certain level of difficulty to limit the generation of new blocks. Some networks take only a minute to generate a new block while others, like Bitcoin, take around 10 minutes. The time frame is usually set artificially and changes dynamically depending on how much total computing resources are invested in solving the puzzle.
While it is easy to predict how long it will take for each new block will be generated, it is difficult to anticipate which miner will generate the next block. That said, the more hashing power a miner has in relation to other people in the network, the bigger the probability that this miner will succeed.
Every newly-mined block contains the hash of the previous block, creating a linked chain. The whole process makes the blockchain network impossible to tamper with because it will require a lot of work to change even a single data in a block, and the amendments will be immediately noticeable.
The most broadly used PoW scheme is the SHA-256 algorithm used by Bitcoin. Other hashing algorithms used for Proof-of-Work are:
— Scrypt — a computationally intensive key derivation function used by several cryptocurrencies like Litecoin and Dogecoin
— Blake-256 — created to replace MD5 and SHA-1. It comes in a 32-bit and 64-bit variant.
— HEFTY1 — a new ASIC-resistant cryptographic hash function that has low heat generation and lean power consumption.
— CryptoNight — a PoW algorithm that is only suitable for ordinary computer CPUs.
The Proof-of-Work mechanism is valued for its ability to keep the blockchain secure. However, it has often been criticized for being very energy-intensive. For instance, in the beginning of 2017, Bitcoin mining used as much energy as the country of Hungary.
51% Attacks: What Are They?
Another important drawback of Proof-of-Work is the threat of 51% attacks. These are malicious actions on a blockchain initiated by a miner or mining group with 51% or more of the network’s hashing power. Such an attack gives the attackers control over the creation of new blocks in the chain. They could theoretically halt new transactions and revert old ones, letting the attacker double spend coins.
Bitcoin has never experienced a 51% attack, but several of the smaller PoW based blockchains have suffered from its effects. Among them are MonaCoin, ZenCash, Zcash, and Bitcoin Gold. The lattermost attack resulted in a loss of over $18 million worth of Bitcoin Gold.
Crypto51 Hashpower is a website that was built to bring awareness to the dangers of 51% attacks. It that calculates how much renting adequate hash power it would cost to carry out a 51% attack on a network of cryptocurrency. By providing this information, its creators hope to encourage discussion about the problem and its potential solutions.
Other consensus mechanisms have been developed to circumvent the issues affecting Proof-of Work, for example Proof-of-Stake or Proof-of-Authority. However, they come with their own trade-offs.