Everything You Need to Know About Proof of Work Consensus Mechanism

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Proof of work is a consensus mechanism that is used for securing cryptocurrencies including Bitcoin and Ethereum.


Fiat currencies and Digital currencies often have a central authority for keeping the track of users and their transactions.


As we know, the crypto assets are decentralised i.e., there is no authority for ensuring transactions, therefore proof of work is necessary to operate crypto currencies.

What Problem Does Proof of Work Solve?

Originally developed in 1993, proof of work is a concept that was adopted as a consensus mechanism for bitcoin in 2009 to validate the transaction and add new blocks to the blockchain. 


Proof of work prevents the users from indulging in dishonest activities such as creating new coins or double spending their coins.


Double spending contains the risk of inflating the supply of cryptocurrency which in turn would reduce the value of everyone else’s coins making the cryptocurrencies undesirable and worthless.


Double pending is a serious issue as the users can duplicate the transaction as many times as they could and since there is no central authority it would be difficult to verify the transactions.

How Does the Proof of Work-POW Works?

Cryptocurrency, as known, works on the blockchain, which essentially is the technology in which blocks containing transactions are linked through a chain.


Miners are in-charge of adding blocks and eventually executing the proof of work. Miners around the world compete to verify these transactions.


As a return for processing these transactions, they are rewarded by the users.


A miner roughly comes with a successful proof of work after every 10 minutes.


They are rewarded for successfully matching certain mathematical equations for which they need super computational powers.


Users often wonder what are these computational processes that miners do. To answer the question, they use a hash function that converts arbitrary size data into a string alpha-numeric value.


Among the miners whoever hash the values faster wins. Then, the new value is added for miners to hash.


Although mining is a competitive process, miners are chosen randomly and since they are incentivized, they work honestly.


The proof of work is extremely difficult to reverse since it would mean re-mining all the blocks and requires a lot of time to do so. 


The proof-of-work eliminates the need of having a trusted third party, such as a bank in case of fiat currency, for securing peer-to-peer transactions.


There is also quite a lot of confusion regarding proof-of-work and proof-of-stake. Proof-of-stake is also a consensus mechanism similar to proof-of-work.


The proof of Stake is adapted for solving the problems of proof of work or as an alternative to it. 


The problems associated with PoW are that PoW is unsustainable, the energy required for mining is quite high, and also leaves a big carbon footprint. Besides, it also generates a lot of electrical waste.


With proof-of-stake, a node is selected based on various parameters such as mining history (the more coins mined earlier, the more the mining power).

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Disclaimer:
This information is for educational purposes only and does not constitute investment advice. No person should rely on it to make any investment. Investing carries risks, including the loss of capital. All opinions expressed are subject to change without notice. Past performance is not indicative of future results. Always seek the advice of a licensed investment professional before making any investment.