Understanding Blockchain Consensus Mechanism: Proof-of-Work (PoW)
Proof-of-Work (PoW) is the most commonly used consensus algorithm for blockchain. It is used to verify transactions and create new blocks on the blockchain. PoW uses miners to verify transactions and add them to the blockchain.
In this article, we will discuss how PoW works and what it does. We will also cover some of its weaknesses and how they can be improved upon by using other consensus algorithms.
Blockchain is a distributed database that maintains a continuously growing list of data records. Each block in the chain contains a link to the previous block and a timestamp. A blockchain is secured by using cryptographic techniques that keep it tamper-proof and distributed, meaning there is no central authority that controls it.
The process of adding new blocks to the chain is called mining or proof-of-work (PoW). Miners solve cryptographic puzzles by guessing numbers until they find a solution that allows them to add a new block to the blockchain. If their guess is correct, they receive a reward in the form of newly created cryptocurrency.
Miners are incentivized to participate in this process because they can earn rewards for their efforts, which reduces the risk associated with malicious attacks on the network. The amount of rewards depends on how much effort was spent by miners and whether or not they were successful at finding solutions for adding new blocks to the chain (i.e., whether or not they were able to mine successfully).
History of Proof-of-Work (PoW)
Proof-of-Work (PoW) is a type of algorithm used in the blockchain consensus process. The PoW mechanism was first described by Cynthia Dwork and Moni Naor in their 1992 paper “Pricing via Processing or Combatting Junk Mail.”
PoW was initially created as a proposed solution to the growing problem of spam email. It was later popularised by Bitcoin as a foundation for consensus in permissionless decentralised networks, in which miners compete to append blocks and mint new currency. However, PoW systems have been criticised by environmentalists for their energy consumption.
Due to Proof of Work, it is very difficult to change any component of the blockchain because doing so would necessitate mining all new blocks.
Additionally, because the equipment and power needed to perform the hash functions demand a significant investment, it becomes impossible for a single user or group of users to monopolise the network’s computational capacity.
How Proof-of-Work (PoW) Works
To reach consensus in a decentralised manner and prevent malicious actors from taking over the network, PoW requires nodes on a network to demonstrate that they have expended computational power.
The PoW mechanism is commonly used to create new blocks in blockchains such as Bitcoin, Litecoin, Dogecoin (DOGE), Monero (XMR) and many others.
It works by requiring miners to perform computational work in order to be eligible for block rewards.
Why PoW is Required for Cryptocurrencies
Blockchains, such as bitcoin networks, need a method of achieving both consensus and security because they are designed to be decentralised and peer-to-peer. Proof of work is one such technique that makes attempting to take over the network preventively resource-intensive.
How Bitcoin Uses PoW
Bitcoin employs a proof-of-work (PoW) algorithm based on the SHA-256 hashing function to verify and confirm transactions as well as create new bitcoins for circulation. Individual miners mine bitcoins using the Hashcash proof-of-work function, which is verified by the decentralised nodes in the P2P bitcoin network.
Criticism of Proof-of-Work (PoW)
The mining process of PoW can be energy intensive, which has been criticised by environmentalists for its energy consumption. Ethereum, the second largest cryptocurrency, switched to a more efficient system called Proof-of-Stake in September 2022, and many newer crypto projects are also looking beyond proof of work.
Proof of Stake (PoS) Vs. PoW: PoS is a consensus mechanism that randomly assigns the node that will mine or validate block transactions according to how many coins that node holds. The more tokens held in a wallet, the more mining power is effectively granted to it.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.
