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What is Proof of Work in Crypto and How does it Work?

Pragya Soni
Mar 26, 2022

“Bitcoin is exciting to me because it shows how cheap transactions can be.”

– Bill Gates

This statement of Bill Gates related to Bitcoin reflects the authenticity of Cryptocurrency. From teenagers to the growing population, everyone around the globe is currently utilizing Cryptocurrency. It has proven a boon to both investors and miners.

In case you don't know about miners, Cryptocurrency miners are the people involved in the network who validate the transactions. They are responsible for adding further blocks in the blockchain.

For adding blocks or for mining, the miners use algorithms and tricks. One of such traditional approaches includes proof of work, as the name suggests it is dependent on the amount of work, i.e. computing work here, of the miner.

In this blog, we will study about the proof of work, its advantages and disadvantages.

What is Proof of Work?

PoW expanded as Proof of Work. It is described as a system that requires a feasible amount of effort in order to detect malicious use of computing power. These frivolous uses can be activities such as sending spam emails or launching denial of service attacks.

It is a decentralized consensus mechanism. It requires members of a network to expend effort to solve a mathematical query so as to prevent people from gaming into the system. It is used in cryptocurrency mining. It can be equipped for both validating transactions and mining new tokens.

Proof of work helps in proceeding transactions peer-to-peer in a secure manner without raising the demand for a trusted third party. Also, it requires a huge amount of energy at scale level as mining is an energy consuming process. Another alternative to Proof of Work is Proof of Stake.

Also Read | Pool Mining

How do Proof-of-work procedures work?

You might be wondering how proof-of-work actually works in real life. Well, the process is quite clear and simple. As mentioned above, proof of work is a consensus mechanism used to validate and record the cryptocurrency transactions.

A blockchain is dedicated to every cryptocurrency in the crypto network. A blockchain is made up of blocks of transactions, and basically defined as a public ledger. As proof of work is used to validate transactions.

Each transaction of crypto is assigned with a hash. And for that transaction to validate the crypto miner must have to generate a target hash that is lower or equal to the sample block.

And to generate this kind of target hash, miners use mining devices that quickly generate computations. The one miner who generates the target hash first and faster than other miners is the one who updates the blockchain. Also, only he receives crypto rewards.

Thus, the generation of target hash is a difficult thing. But validating is easy, and maybe that’s the reason why proof of work goes well in cryptocurrency. But the process is strong enough to prevent the manipulation of transaction records. Also, validation becomes easy by applying this process.

Also Read | Difference between Bitcoin and Ethereum

Example of Proof of Work

To understand the working of proof of work more clearly, let us go through an example of bitcoin. See how Bitcoin uses proof of work to maintain the integrity of the blockchain.

As a bitcoin transaction occurs in the network, it goes through a security verification. The transactions are categorized into blocks and are queued in order to be mined. Then particular proof of work generates a hash for the block. For bitcoin, it is SHA-256 and generates a 64-character long string.

The miners community then rushed to generate a target hash. The miner that generates the hash first gets the rewards. The miners get rewards in the form of newly minted coins and transaction fees.

By applying a proof of work algorithm a new block is added to the blockchain after every 10 minutes. Thus the algorithm adjusts the difficulty of bitcoin mining depending on the speed and ability of the miners to mine it.

Advantages and Disadvantages of Proof of Work

Advantages and Disadvantages of Proof of Work

Some obvious advantages offered by Proof of Work are:

PoW has a high level of security.

Proof of Work provides a decentralized method of validating transactions.

Proof of Work ensures the miners to earn crypto rewards

The disadvantages offered by Proof of Work are:

The process has slow transaction speeds and expensive fees.

Energy usage is quite high.

The equipment requirement is technical and high.

Also Read | Dark Side of Cryptocurrency

Key Differences between Proof of Work and Proof of Stake

Proof of Stake is the alternative to Proof of Work. Like proof of work it is also a consensus algorithm. The algorithm decides who will validate the next chain in the blockchain.

But unlike proof of work, it is not decided on the time limit by which the miners can solve the cryptographic puzzle, it is basically decided on the numbers of cryptographic coins a miner holds. Thus, cryptographic computing power has no role in proof of stake algorithms.

The major differences between proof of work and proof of stake are as follows:

In proof of work the probability of mining depends on the quantity and quality of computational calculations done by the miner, while in proof of stake this probability depends on the amount of stake a person holds.

In proof of work the reward is given to the miner who solves the puzzle first, while in proof of stake reward is given in the form of network fee.

In proof of work, miners have to complete puzzle solving using computer process power to add a block in the blockchain. While in proof of stake there is no competition as a block creator.

In order to hack proof of work, hackers need 51% of computational power, while to hack proof of stake, the minimum requirement is 51% hold on crypto currency which is practically impossible. Thus we can conclude that proof of stake is safer than proof of work.

Proof of work derives less energy while proof of stalk requires more energy.

The cost of implementation of proof of work is less, but proof of stake is more costly.

The proof of work is more proven than proof of stalk systems.

Proof of work requires standardized equipment to optimize processing power while standard server grade is enough in proof of stake.

The initial investment required in proof of work is hardware requirement, while initial investment required in proof of stake is to buy stake and build status in the market.

Bitcoin is the most common crypto currency that uses proof of work, while common currencies that use proof of stake are Tezos, Cardano, Cosmos and Lisk.

Also Read | Cryptographic Key Management

The proof of work employs different mechanisms such as SHA-256, SHA-3, scrypt-jane, scrypt-n, etc. Though, it is quite a risky and time consuming algorithm that consumes so much resources.

These drawbacks of proof of work have given rise to several alternative approaches such as proof of stake, proof of burn. Proof of activity, proof of capacity, proof of activity, and proof of importance. But still it is the most traditional approach to mine popular cryptocurrencies like Litecoin, Ethereum, Bitcoin and Monero coin.

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