Proof of Work (PoW)

What is Proof of Work?

We know that new bitcoins are made by the process called mining. Mining new bitcoins takes a lot of computing power because of the proof-of-work algorithm. Proof-of-work is a necessary part of adding new blocks to the Bitcoin blockchain. A new block is accepted by the network each time a miner comes up with a new winning proof-of-work, which happens roughly every 10 minutes.

Understanding Proof of Work

Proof of Work (PoW) is the consensus algorithm in blockchain networks of cryptocurrencies like bitcoin and ethereum. The algorithm is used to confirm the transaction and creates a new block to the chain. In this algorithm, miners compete against each other to complete the transaction on the network. This requires the solving of very complex mathematical puzzles. As soon as miners successfully solved the puzzle and created a valid block, he gets rewarded. 

That’s just what we call a method for securing the cryptocurrency’s ledger. More specifically proof-of-work solves the “double-spending problem,” which is trickier to solve without a leader in charge. If users can double-spend their coins, this inflates the overall supply, debasing everyone else’s coins and making the currency unpredictable and worthless. Double-spending is an issue for online transactions because digital actions are very easy to replicate, which is what makes it trivial to copy and paste a file or send an email to more than one person. Proof-of-work makes doubling digital money very, very hard. It’s much what it sounds like: “proof” that someone has done a significant amount of computations. Proof of work at scale requires huge amounts of energy, which only increases as more miners join the network.

The purpose of proof-of-work algorithms are not proving that certain work was carried out or that a computational puzzle was "solved", but deterring manipulation of data via the specific solution of establishing large energy and hardware-control requirements for the ability to do so. 

History

Although Satoshi Nakamoto is credited as the inventor of Proof of  Work but the concept Proof of Work was first invented by Cynthia Dwork and Moni Naor in 1993 as a way to deter denial-of-service attacks and other service abuses such as spam on a network by requiring some work from a service requester, usually meaning processing time by a computer. The term "proof of work" was first coined and formalized in a 1999 paper by Markus Jakobsson and Ari Juels.

The first actual practical implementation of Proof of work was done by Satoshi Nakamoto with his creation of bitcoin. It worked as a foundation for consensus in bitcoin blockchain and in other cryptocurrencies.

Example of Proof of Work

For our reference, I have taken the example of Ethereum blockchain.

Ethereum transactions are processed into blocks. Each block has a:

• block difficulty – for example: 3,324,092,183,262,715
• mixHash – for example: 0x44bca881b07a6a09f83b130798072441705d9a665c5ac8bdf2f39a3cdf3bee29
• nonce – for example: 0xd3ee432b4fb3d26b

This block data is directly related to PoW.

How does it work?

Let us discuss it with a reference. For example someone sent some bitcoins to a receiver. The blockchain consists of many private nodes. The network nodes try to validate the transaction by competing among themselves to find the solution to complex mathematical problems. That miner who solves the puzzle first records the transaction into the blockchain. For this work, the miner receives few bitcoins in the form of transaction fees. Proof of Work use up a lot of computational power, energy, and time.

Examples of Proof of Work cryptocurrencies

Many cryptocurrencies use Proof of Work including the top two cryptocurrencies according to market capitalization. The example includes Bitcoin, Ethereum, Dogecoin, Bitcoin Cash, Lite coin, Monero.

Though Ethereum works on Proof of Work. But it has recently began the long process of transitioning to Ethereum 2.0, an upgrade that will shift the cryptocurrency to the potentially greener proof-of-stake instead.