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Proof of work: what is it and how does it work?

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Proof of work: what is it and how does it work?

If you are not very clear about what it is and how it works, in this article I will explain what the Proof of Work consensus mechanism consists of and what role it plays in a blockchain, as well as…

If you are not very clear about what it is and how it works, in this article I will explain what the Proof of Work consensus mechanism consists of and what role it plays in a blockchain, as well as its advantages and disadvantages.

What is Proof of Work?

In a blockchain, Proof of Work is the method for confirming transactions and obtaining new blocks for the network.

Miners are responsible for confirming transactions or ordering blocks. The procedure involves the use of special processing units and electronic circuits to solve complex mathematical puzzles, resulting in considerable energy consumption.

Miners compete against each other to solve these puzzles. The winner can update the blockchain, verify the latest transactions, and be rewarded with a predetermined amount of cryptocurrencies.

Bitcoin was the first blockchain to use this type of consensus mechanism and was soon followed by other networks, such as Ethereum. However, many blockchains are currently migrating to a Proof of Stake type consensus mechanism.

What is the role of Proof of Work?

Proof of Work is used to prevent users from over-generating or counterfeiting cryptocurrencies. At the same time, it has the function of preventing double-spending, a risk associated with digital currencies.

If someone could spend the same cryptocurrency more than once, it would be completely useless.

In a centralized financial system, the bank or stock exchange that oversees the system monitors how much money each individual has. If David sends $1 to Adrian, the exchange deducts $1 from David and transfers $1 to Adrian.

In contrast, in decentralized systems, and therefore in the world of cryptocurrencies, there is no entity acting as a bank. For this reason, Proof of Work is needed to prevent theft or counterfeiting.

What are the advantages of Proof of Work?

Proof of Work has some important advantages, especially when it comes to Bitcoin.

For example, this consensus mechanism has already proven to be a good way to keep a decentralized blockchain secure.

In order to defraud transactions on the blockchain, it would be necessary to corrupt 51% of the nodes that make up the network, which means misusing this percentage as a hash rate or processing power.

As the value of a cryptocurrency increases, more and more miners are motivated to join the network, which makes the blockchain more secure and gives it more power.

As a result of the processing power used, and implicitly the number of nodes in the network, it is no longer viable for a malicious entity to attempt to hijack transactions on that blockchain.

What are the disadvantages of Proof of Work?

One of the main disadvantages is the high energy consumption.

According to some studies, Bitcoin consumes as much energy as Switzerland for this consensus mechanism. However, it should be noted here that a certain percentage of this energy is in fact renewable energy.

The risk of what is called a 51% Attack could be a problem. As we said in the previous point, if someone could accumulate 51% of the Bitcoin mining hash rate, they would have the power to break the rules for the time being, either for double-spending or for blocking transactions. Examples of such cases would be the attacks on the Krypton, Shift, and Bitcoin Gold blockchains.

These are the reasons why some have decided to switch to Proof of Stake.

Public blockchains operate in a decentralized manner, so there is no central authority to manage their activity, which means that a consensus mechanism is needed for them to function properly, according to certain rules.

There are several consensus mechanisms, each with its pros and cons, and Proof of Work is the first one that has been used.