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What Is Proof of Work?


 Proof of Work.

What Is Proof of Work?

Proof of Work is a blockchain-based algorithm that secures many cryptocurrencies, including Bitcoin and Ethereum.

Proof of Work is the algorithm that secures many cryptocurrencies, including Bitcoin and Ethereum. Most digital currencies have a centralized entity or administrator that monitors each user and how much money they have. But there is no such leader in charge of cryptocurrencies like Bitcoin. Proof of work is required to run the online currency without a company or government running the show.

Specifically, Proof of Work solves the "double-spend problem" that is more difficult to solve without a responsible leader. If users could double their spending, that would inflate the overall supply, devalue everyone else's coins, and render the currency unpredictable and worthless.

Double-spending is a problem for online transactions because digital stocks are so easy to reproduce, making it trivial to copy and paste a file or email it to multiple people.

Proof of Work makes it very, very difficult to double down on digital money. That's pretty much what it sounds like "proof" that someone has done a significant amount of math.

How does proof of work works?

Bitcoin is a blockchain, a shared ledger that contains the history of every Bitcoin transaction that took place. As the name suggests, this blockchain consists of blocks. Each block contains the most recent transactions stored in it.

Proof of work is a necessary part of adding new blocks to the Bitcoin blockchain. Blocks are called to live by miners, who are ecosystem actors performing proof-of-work. A new block is accepted by the network when a miner presents a new proof of work that happens every 10 minutes.

Finding winning proof of work is so difficult that special and expensive computers are the only way to provide miners with the work they need to earn bitcoin. Miners will earn bitcoins if they guess a matching calculation. The more calculations they generate, the more bitcoins they are likely to earn.

What calculations exactly do miners make? In Bitcoin, miners spit out what's called a "hash", which turns an input into a seemingly random string of letters and numbers.
The goal of miners is to generate a hash that matches Bitcoin's current "target". They must generate a hash with enough leading zeros. The probability of getting several zeros in a row is very low. But miners around the world do billions of these calculations per second, so it takes an average of 10 minutes to reach this goal.

The first to reach the target wins a bitcoin cryptocurrency prize. The Bitcoin protocol then creates new value for miners to hash, and the miner's race again to find the winning proof of work.

Rules for miners 

Miners earn bitcoin rewards for each block they find a solution to. That's what pushed them to mine in the first place.

This monetary reward also pushes them to follow the rules – not to double their money, for example. Suppose that miner Alfred finds a winning hash for a block. Alfred offers the solution with the block, but if he breaks the rules of the block – for example, spends more than one token – the rest of the Bitcoin network will reject Alfred's block. Alfred will lose all the bitcoin he had to earn. The threat of losing Bitcoin rewards keeps miners honest.

Why is proof of work needed?

The purpose of proof of work is to prevent users from printing extra money they didn't earn or doubling their spending. If users could spend their tokens more than once, it would effectively render the currency worthless.
With most digital currencies, this problem is easy to fix. The bank responsible for the system keeps track of how much money each person has. If Alice sends 1 dollar to Bob, the bank deducts 1 dollar from Alice and gives 1 dollar to Bob.
But there is no such entity in cryptocurrency. Proof of work provides a solution.

Who Invented Proof of Work?

Bitcoin creator Satoshi Nakamoto invented proof-of-work to get Bitcoin off the ground. No one knows who Nakamoto is or if his name is a nickname.

What are the issues with Proof of Work?

There are at least a few issues with proof of work:

  • High energy consumption: Bitcoin uses as much energy as all of Switzerland due to its proof-of-work. While some run on renewable energy, power consumption is increasing as more miners join the hunt for bitcoin.
  • 51% Attacks: If a mining operation can accumulate 51% of Bitcoin mining hash power, it can temporarily break the rules, double the coin, and block transactions.
  • Mining Centralization: The proof of work is creating a currency without a single responsible entity. However, in practice, the system is somewhat centralized with only three mining pools controlling about 50% of Bitcoin's computing power. However, the developers are at least trying to alleviate this problem.

Why does more mining power mean more security?

The more computing power invested in securing Bitcoin, the more resources a potential attacker must accumulate in order to successfully attack Bitcoin.

The most popular proof-of-work cryptocurrencies :

  • Bitcoin
  • Ethereum (though Ethereum 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.)
  • Bitcoin Cash
  • Litecoin
  • Monero