What is Proof of Work (PoW)
A very common term in the Blockchain and Crypto community, but not really understood by everyone.
If you’re just a regular investor in any cryptocurrency, you might not really care much to know what Proof of Work really is. But, if you’re curious about blockchain technology (we trust you are), you must be wondering what it’s all about unless of cause you already know.
But for our curious readers who don’t know what proof of work is, and would love to, this article is for you.
So what is it?
Proof of Work (PoW) is simply a consensus algorithm or mechanism used in the blockchain to prevent frauds such as double spending and to validate transactions in the blockchain.
A consensus algorithm is simply a mechanism used in a network to prevent fraudalents activities.
Proof of work has become a very popular and commonly adopted consensus mechanism by many Cryptocurrencies including Bitcoin and Ethereum (specifically ETH 1.0). There are different types of consensus mechanisms but Proof of work is more widely adopted.
The idea of using PoW as a consensus mechanism for Bitcoin (the first cryptocurrency) was proposed in the Bitcoin white paper released by Satoshi Nakamoto in late 2008. The concept of proof of work existed well before the white paper was released, so it wasn’t a new technology.
Why Proof of Work?
Cryptocurrencies run and are managed by a decentralized network called the blockchain. This simply means that it is not governed by any central body, but like fiat money (US Dollars or any other currency), its transactions have to be recorded.
Also, since it runs on a decentralized network, a mechanism was required to prevent situations where the same fund could be spent more than once, this is known as double-spending. Double spending is not possible with physical money, since you cannot spend the same money more than once. The banks are there to make sure you can’t double spend. But, crypto is not regulated by any central body or intermediary such as a bank, and since it's a digital asset a fraudster could easily double spend.
This is where a consensus mechanism, such as a Proof of work comes in.
How does PoW work?
Imagine three parties John, Gabe, and Sarah wanted to send tokens to each other, but they also wanted to keep track of the tokens sent. So they elected Sarah to record the transactions on a notepad each time a token was sent. If John has 5 tokens and sends Gabe three tokens, it is recorded on the notepad. Gabe may decide to send Sarah some tokens, which will be recorded on the notepad. If Gabe tries to send Sarah three tokens, for example, it will not be recorded. This is because Gabe is trying to send tokens he does not have. This way John, Gabe, and Sarah are able to prevent double-spending.
Now imagine if more than a million people wanted to send each other tokens!! This method would not work exactly, because we would find it hard to trust a stranger to keep records of the transactions.
Let the notepad be a network called the blockchain. With Proof of work, instead of a single person validating records, everyone on that network takes records of the transactions. And instead of recording each transaction one after the other, they are lumped in blocks. A block is not added to the chain (the record) until it has been confirmed by the network. But, before a block is confirmed, a certain computational power is required. Proof of work makes use of game theory and cryptography to validate a block. Everyone on this network is called a miner. Each miner competes to provide a hashed block that meets a particular condition. To provide a hashed block, they pass the block (which contains the transaction data and a variable known as a nonce) through a hash function, which provides a hash block. If the hashed block doesn't meet the requirements or conditions, the block has to be passed through a hash function again until the condition is met. To have a different hash result, the nonce in the block has to be changed in each trial.
Miners compete to be the first to find a valid hash that meets a specific condition for that block to be confirmed. After a valid hash is found, it is broadcasted in the network for other miners to see and confirm. The hashed block is then added to the chain. The first miner to find the valid hash is rewarded with some tokens (the cryptocurrency of that network). This is how mining takes place. Each successful hash block in the blockchain has a special signature that is unique to its miner, hence it is called proof of work.
It might sound a little confusing at first, but this is how the blockchain keeps cryptocurrency transactions safe. With this method, double spending can be avoided and no miner influences the network's record negatively, because it would cost them a lot of computational power only for them to fail.
As reliable as proof of work has been for cryptocurrencies, it is very resource-intensive. It requires a lot of computing power and electricity in the process. As mentioned before, there are other consensus mechanisms, an example is Proof of Stake, which requires no computational power from miners, hence saving electricity costs and having a low carbon footprint. Ethereum 2.0 will be adopting the proof of stake to run its network in the future.
In the future, PoW might be replaced with PoS, I can’t say for sure. But, I do know that PoW will be around for quite a while before it’s abandoned.
And that's all there is to proof of work!! If you have questions or thoughts on PoW please let me know. And do leave a handshake and subscribe if you liked this article.