What Is Proof of Work (PoW) in Blockchain? (2023)

What Is Proof of Work (PoW)?

Proof of work (PoW) describes a system that requires a not-insignificant but feasible amount of effort in order to deter frivolous or malicious uses of computing power, such as sending spam emails or launching denial of service attacks. The concept was subsequently adapted to securing digital money by Hal Finney in 2004 through the idea of "reusable proof of work" using the SHA-256 hashing algorithm.

Following its introduction in 2009, Bitcoin became the first widely adopted application of Finney's PoW idea (Finney was also the recipient of the first bitcoin transaction). Proof of work forms the basis of many other cryptocurrencies as well, allowing for secure, decentralized consensus.

Key Takeaways

  • Proof of work (PoW) is a decentralized consensus mechanism that requires members of a network to expend effort solving an arbitrary mathematical puzzle to prevent anybody from gaming the system.
  • Proof of work is used widely in cryptocurrency mining, for validating transactions and mining new tokens.
  • Due to proof of work, Bitcoin and other cryptocurrency transactions can be processed peer-to-peer in a secure manner without the need for a trusted third party.
  • Proof of work at scale requires huge amounts of energy, which only increases as more miners join the network.
  • Proof of Stake (POS) was one of several novel consensus mechanisms created as an alternative to proof of work.
(Video) What is Proof of Work (PoW)|Explained For Beginners

Understanding Proof of Work

This explanation will focus on proof of work as it functions in the bitcoin network. Bitcoin is a digital currency that is underpinned by a kind of distributed ledger known as a "blockchain." This ledger contains a record of all bitcoin transactions, arranged in sequential "blocks," so that no user is allowed to spend any of their holdings twice. In order to prevent tampering, the ledger is public, or "distributed"; an altered version would quickly be rejected by other users.

Theway that users detect tampering in practice is through hashes, long strings of numbers that serve as proof of work. Put a given set of data through a hash function (bitcoin uses SHA-256), and itwill only ever generate one hash. Due to the "avalanche effect," however, even a tiny change to any portion of the original data will result in a totally unrecognizable hash. Whatever the size of the original data set, the hash generated by a given functionwill be the same length. The hash is a one-way function: it cannot be used to obtain the original data, only to check that the data that generated the hash matches the original data.

Generating just any hash for a set of bitcoin transactions would be trivial for a modern computer, so in order to turn the process into "work," the bitcoin network sets a certain level of "difficulty." This setting is adjusted so that a new block is "mined"—added to the blockchainby generating a valid hash—approximatelyevery 10 minutes. Setting difficulty is accomplished by establishing a "target" for the hash: the lower the target, the smaller the set of valid hashes, and the harder it is to generate one. In practice, this means a hash that starts with a very long string of zeros.

Proof of work was initially created as a proposed solution to the growing problem of spam email.

(Video) Proof-of-Work (PoW) in Blockchain Explained | CryptoVantage

Special Considerations

Since a given set of data can only generate one hash, how do miners make sure they generate a hash below the target? They alter the input by adding an integer, called a nonce ("number used once"). Once a valid hash is found, it is broadcast to the network, and the block is added to the blockchain.

Mining is a competitive process, but it is more of a lottery than a race. On average, someone will generate acceptable proof of work every ten minutes, but who it will be is anyone's guess. Miners pool together to increase their chances of mining blocks, which generates transaction fees and, for a limited time, a reward of newly-created bitcoins.

Proof of work makes it extremely difficult to alter any aspect of the blockchain, since such an alteration would require re-mining all subsequent blocks. It also makes it difficult for a user or pool of users to monopolize the network's computing power, since the machinery and power required to complete the hash functions are expensive.

If part of a mining network begins accepting an alternative proof of work, it is known as a hard fork.

(Video) Proof of Work (PoW) Blockchain and Cryptocurrency: What You Need to Know | 2019

Example of Proof of Work

Proof of work requires a computer to randomly engage in hashing functions until it arrives at an output with the correct minimum amount of leading zeroes. For example, the hash forblock #660000, mined on Dec. 4, 2020 is00000000000000000008eddcaf078f12c69a439dde30dbb5aac3d9d94e9c18f6. The block reward for that successful hash was 6.25 BTC.

That block will always contain 745 transactions involving just over 1,666 bitcoins, as well as the header of the previous block. If somebody tried to change a transaction amount by even 0.000001 bitcoin, the resultant hash would be unrecognizable, and the network would reject the fraud attempt.

Proof of Work FAQs

What Does Proof of Work Mean?

PoW requires nodes on a network to provide evidence that they have expended computational power (i.e. work) in order to achieve consensus in a decentralized manner and to prevent bad actors from overtaking the network.

(Video) Proof of Work (Pow) in Blockchain | Perfect Explain

How Does Proof of Work Validate a Crypto Transaction?

The work itself is arbitrary. For Bitcoin, it involves iterations of SHA-256 hashing algorithms. The "winner" of a round of hashing, however, aggregates and records transactions from the mempool into the next block. Because the "winner" is randomly-chosen proportional to the work done, it incentivizes everybody on the network to act honestly and record only true transactions.

Why Do Cryptocurrencies Need Proof of Work?

Because they are decentralized and peer-to-peer by design, blockchains such as cryptocurrency networks require some way of achieving both consensus and security. Proof of work is one such method that makes it too resource-intensive to try to overtake the network. Other proof mechanisms also exist that are less resource-intensive, but which have other drawbacks or flaws, such as proof of stake (PoS) and proof of burn. Without a proof mechanism, the network and the data stored within it would be vulnerable to attack or theft.

Does Bitcoin Use Proof of Work?

Yes. It uses a PoW algorithm based on the SHA-256 hashing function in order to validate and confirm transactions as well as to issue new bitcoins into circulation.

How Does Proof of Stake (PoS) Differ from 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. While PoS is far less resource-intensive, it has several other flaws including a greater chance of a 51% attack in smaller altcoins and incentives to hoard tokens and not use them.

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(Video) What is Proof of Work (POW) and Proof of Stake (POS) - Crypto Knowledge

FAQs

What is Proof-of-Work explain? ›

Proof of work is a technique used by cryptocurrencies to verify the accuracy of new transactions that are added to a blockchain. The decentralized networks used by cryptocurrencies and other defi applications lack any central governing authority, so they employ proof of work to ensure the integrity of new data.

What does Proof-of-Work prove? ›

Proof of work (PoW) is a form of cryptographic proof in which one party (the prover) proves to others (the verifiers) that a certain amount of a specific computational effort has been expended. Verifiers can subsequently confirm this expenditure with minimal effort on their part.

What is PoW and POS in blockchain? ›

Proof-of-Work? Proof of Stake (POS) uses randomly selected validators to confirm transactions and create new blocks. Proof of Work (POW) uses a competitive validation method to confirm transactions and add new blocks to the blockchain.

What Proof-of-Work PoW consensus system does Bitcoin use? ›

Bitcoin's PoW System

Bitcoin uses the Hashcash Proof of Work system as the mining basis.

What is a proof of work in blockchain? ›

Proof of work (PoW) is a decentralized consensus mechanism that requires members of a network to expend effort solving an arbitrary mathematical puzzle to prevent anybody from gaming the system. Proof of work is used widely in cryptocurrency mining, for validating transactions and mining new tokens.

Why is proof of work needed for blockchain? ›

Proof of work enables bitcoin transactions to to be confirmed and recorded without a central authority. It disincentivizes attacks on a crypto's blockchain by making verifying transactions expensive. Proponents of proof of work contend it's more secure than other mechanisms like proof of stake.

Why proof of work is the best? ›

Proof of work provides a way for the blockchain to remain “trustless,” meaning no third-party is necessary to verify or manage the transactions. “Proof of work, especially the way it's used for the bitcoin network, is kind of the ultimate in developing an asset,” Blumberg says.

Is proof of work the best? ›

Security. So far, proof-of-work has been the most proven way to maintain consensus and security within a distributed public network. This is because proof-of-work requires the initial cost of hardware and the ongoing expenditure of resources, rather than a single upfront expense to participate like proof-of-stake.

Why is PoW better than PoS? ›

PoW involves competing to solve a complex mathematical problem to get the chance to verify the block while PoS works on the principle of staking. Due to the difference in principles – PoW uses a lot more energy to do verify one block, while PoS is able to do that same function at a tiny fraction of what PoW uses.

What is PoC and PoW? ›

Proof of capacity (PoC) authentication systems employ spare space on a device's hard drive to store solutions to a cryptocurrency hashing problem. The main benefit of a PoC system is its efficiency compared to proof-of-work (PoW) and proof-of-stake (PoS) systems.

What PoS means? ›

A point of sale (POS) is a place where a customer executes the payment for goods or services and where sales taxes may become payable. A POS transaction may occur in person or online, with receipts generated either in print or electronically.

What is PoS model in blockchain? ›

As a consensus algorithm, PoS uses validators that have a specific stake, which is a minimum amount of cryptocurrency tokens on the blockchain. The stake held by validators is locked into a smart contract on the cryptocurrency's blockchain to help maintain the required amount of cryptocurrency tokens.

Who created proof-of-work? ›

Hal Finney, Proof-of-Work, and Bitcoin

In 1999, two years after the creation of Adam Back's concept of Hashcash, an academic essay by Ari Juels and Markus Jakobsson was published entitled “Proofs of Work and Bread Pudding Protocols.” This was the first time the term Proof-of-Work actually appeared.

Which blockchain protocol uses proof-of-work consensus? ›

The Ethereum network began by using a consensus mechanism that involved Proof-of-work (PoW). This allowed the nodes of the Ethereum network to agree on the state of all information recorded on the Ethereum blockchain and prevented certain kinds of economic attacks.

Is ethereum still using proof-of-work? ›

Ethereum blockchain shifted from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism on Sept. 15, 2022.

What is proof of work in blockchain PDF? ›

PoW: Proof-of-Work or PoW, is the original consensus algorithm in a Blockchain networks, where user sends a digital token to each other, verifies the transactions and create new blocks to the chain.

Which coins use proof of work? ›

Proof of work is the older of the two, used by Bitcoin, Ethereum 1.0, and many others. The newer consensus mechanism is called proof of stake, and it powers Ethereum 2.0, Cardano, Tezos and other (generally newer) cryptocurrencies.

Why is proof of work more secure? ›

The main strength of proof of work is that, by requiring an increasingly large investment in energy, it makes it exponentially more difficult for a would-be bad actor to verify invalid blocks and double-spend cryptocurrency.

Is proof of work superior? ›

PoW is more superior than PoS from a security and data authenticity perspective. This is due to the fact that in PoW, the data is connected to a proven history of human choices, which cannot cheat in a system that verifies every single transaction.

What are the limitations of PoW? ›

Limitations of PoW
  • A lot of energy gets wasted as only one miner can eventually add its block.
  • It requires heavy computation power hence massive resource and energy consumption.
  • A 51% attack risk on the network. ...
  • Spread environmental hazards using additional machinery.
  • Pow is a time and energy-consuming process.
1 Jul 2022

Why is PoW secure? ›

PoW is used to lower processing cycles by providing complex computation problems which enhance security. One of the most famously used examples of PoW is mining a cryptocurrency. The PoW model ensures that miners have direct authority within the network. It also prevents double-spending attacks from occurring.

Is Bitcoin a PoS or PoW? ›

Proof-of-Work (PoW) is a mechanism Bitcoin uses to regulate the creation of blocks and the state of the blockchain. Proof-of-Work provides an objective way for all members of the Bitcoin network to agree on the state of the blockchain and all Bitcoin transactions.

Which is one best example of PoW in blockchain? ›

The most famous application of Proof of Work(PoW) is Bitcoin.

Why is POS system important? ›

A modern POS system will help make your business more cost-focused, will save you time, can improve your relationships with customers, make your business more flexible and mobile, and record vital inventory and revenue data.

What are the different types of POS? ›

These are the most common types of POS systems:
  • Mobile point-of-sale systems. ...
  • Tablet POS systems. ...
  • Terminal POS systems. ...
  • Online point-of-sale system. ...
  • Self-service kiosk POS. ...
  • Multichannel POS systems. ...
  • Open-source POS systems.

How do you use a POS system? ›

To use a retail POS, you simply need to scan the barcode of a product or log it into the till. Then, once the order is placed, you can take the payment and finalize the transaction. If you choose to utilize its additional functions, how you use them will depend on the needs of your business and your chosen software.

What are the 3 POS? ›

The 3-position snatch is simply 3 snatches performed from 3 different starting positions consecutively. Most commonly, the three positions are from the floor followed by two different hang heights, such as below the knee and above the knee.

What is proof of work protocol? ›

Proof of Work is a consensus protocol used by cryptocurrencies, including Bitcoin, to validate the transactions that occur in their networks. These networks are usually built on blockchain technology. A blockchain is a decentralised, trusted ledger of transactions which occur within a network.

What are the different proofs in blockchain? ›

Blockchain systems vary considerably in their design, particularly with regard to the consensus mechanisms used to perform the essential task of verifying network data. The most common consensus mechanisms are Proof of Work (PoW), Proof of Stake (PoS), and methods used by private and consortium blockchains.

Which blockchain uses proof of history? ›

As the blockchain concept expands beyond cryptocurrency into software applications, improving transaction-throughput performance has become a critical area of research and development. One of the more visionary improvements in this area is the Proof of History, introduced by the Solana blockchain.

Is Bitcoin a proof-of-work blockchain? ›

Example of proof of work

Here's an example of how Bitcoin uses proof of work to maintain the integrity of its blockchain. When Bitcoin transactions occur, they go through a security verification and are grouped into a block to be mined. Bitcoin's proof-of-work algorithm then generates a hash for the block.

Is Dogecoin proof-of-work? ›

Dogecoin is now the second-largest proof-of-work blockchain in the world. Ethereum's recent technological upgrade has highlighted the advantages of moving from a proof-of-work blockchain to a proof-of-stake blockchain.

Does Bitcoin rely on proof-of-work? ›

Although many of today's developers are experimenting with new consensus mechanisms, PoW is the breakthrough that made Bitcoin possible. To this day, Bitcoin (BTC) and dozens of altcoins rely on the proof-of-work algorithm to secure their networks without needing a central authority.

What is proof of work in business? ›

A Proof of Work is a form of consensus algorithm used to achieve agreement across a distributed network. In a Proof of Work, miners compete to complete transactions on the network, by commuting hard mathematical problems (i.e. hashes functions) and as a result they get rewarded in coins.

What do you need for proof of work? ›

The following documents show the applicant's right to work in the UK.
  • Passport. ...
  • Permanent resident card. ...
  • National identity card. ...
  • Registration certificate. ...
  • Biometric immigration document. ...
  • Immigration status document. ...
  • Birth or adoption certificate. ...
  • Certificate of registration or naturalisation.
14 Sept 2022

Who created proof of work? ›

Hal Finney, Proof-of-Work, and Bitcoin

In 1999, two years after the creation of Adam Back's concept of Hashcash, an academic essay by Ari Juels and Markus Jakobsson was published entitled “Proofs of Work and Bread Pudding Protocols.” This was the first time the term Proof-of-Work actually appeared.

Do you need proof of work? ›

Proof of work (PoW) is necessary for security, which prevents fraud, which enables trust. This security ensures that independent data processors (miners) can't lie about a transaction. Proof of work is used to securely sequence Bitcoin's transaction history while increasing the difficulty of altering data over time.

Which coins are proof of work? ›

Top Proof-of-Work Tokens by Market Cap [September 2022]
  • INTRODUCTION.
  • SUMMARY.
  • BITCOIN (BTC)
  • DOGECOIN (DOGE)
  • ETHEREUM CLASSIC (ETC)
  • LITECOIN (LTC)
  • MONERO (XMR)
23 Sept 2022

Why is it called proof-of-work? ›

Proof of work and mining are closely related ideas. The reason it's called “proof of work” is because the network requires a huge amount of processing power. Proof-of-work blockchains are secured and verified by virtual miners around the world racing to be the first to solve a math puzzle.

Is proof-of-work superior? ›

PoW is more superior than PoS from a security and data authenticity perspective. This is due to the fact that in PoW, the data is connected to a proven history of human choices, which cannot cheat in a system that verifies every single transaction.

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