In simple terms, Proof-of-Work (PoW) is a way to prove that a certain amount of computational resources have been spent to secure data on distributed networks as part of a consensus mechanism.
Understanding Proof of Work
Understanding Proof-of-Work begins by understanding the problem it solves.
In decentralized distributed networks (e.g., the Bitcoin network), agreeing on the state of data is difficult. Nodes in the network collect data and try to commit it to the network’s database (in the case of blockchain networks, that would be the blockchain).
But if this were their only job, nodes could pass whatever data they wanted to the database. Since a decentralized system has no central oversight, another solution is required to ensure that every node acts honestly.
This is where PoW comes in.
Nodes are forced to do computationally intensive work before they can tell the rest of the network about the data they want to submit.
As part of the network’s consensus mechanism, other nodes will check that this work has been done and will automatically reject any submissions that lack this proof. Additionally, they will check the data itself for validity.
This approach solves the problem of malicious nodes submitting false data to the network, as doing so would cost them so much time and money that it would not be economically viable.
What’s the Role of Proof-of-Work In Blockchain?
“In terms of cryptocurrency, Proof of Work refers to the process of mining where miners – very powerful computers connected to the network – compete to solve complicated mathematical problems.”
Mining City, 2022
Blockchains run on decentralized networks. They are nothing more than a database of account balances and transactions. In proof-of-work blockchains, nodes that submit transaction data are called “miners”.
They do proof-of-work to mine a block of transaction data (i.e., a collection of the latest transactions). By doing so, they commit their resources towards the creation of blocks with the goal of receiving a reward for their efforts. The commitment of computational resources ensures their “stake” in the process.
“In PoW, the more computation resources are invested, the higher the chance is to generate the next block.”
Kan J., 2022
If they submit invalid blocks to the blockchain, other network nodes will reject their work, and they will lose money.
Example of Proof of Work
Let’s look at a practical, real-world example of proof-of-work:
Imagine you are a node operator (i.e., miner) in the Bitcoin network. As users create transactions, they are sent to the network, and you pick some of them up and package them in a block. Among other metadata, this block carries a nonce — essentially a number you can change whenever you want.
To do the required proof-of-work, you hash the block’s details using a hashing algorithm like SHA-256.
The network has set a target hash for you that starts with a certain number of zeros. This number dictates the complexity of the proof you are doing, and it can be adjusted as necessary by the network.
What’s special about hashing algorithms is that even minuscule changes to the input completely alter the output. You use this to your advantage by incrementing the provided nonce by one and running the algorithm again. You do this however many times is necessary to find the target hash.
What Are The Key Differences Between Proof of Work and Proof of Stake?
When pitting PoW vs PoS, a few key differences emerge:
Both proof-of-work (Pow) and proof-of-stake (PoS) are proofs used in achieving network consensus, but their functions differ significantly. As the name would suggest, proof-of-stake proves that a validator (i.e., a node creating data on a PoS system) has some kind of stake in the successful functioning of the system.
Instead of being asked to spend money by expending electricity to power complex computations, participants in a PoS consensus mechanism are required to stake funds directly.
This removes the need for energy-intensive operations, which makes PoS a more environmentally friendly solution for achieving network consensus.
Other differences include faster block times for PoS blockchains and lower barriers to entry for validators, as expensive mining hardware is not required.
Conclusion
Proof-of-work (PoW) is the basis for how Bitcoin. achieves consensus. While its work may sometimes limit its use cases, and its environmental impact is notable, it remains a robust and secure approach that has stood the test of time.
Mining City. (n.d.). What is Proof of Work (PoW)? Mining City.
https://miningcity.com/proof-of-work-desktop_en.pdfKan, J. (2022). Economic Proof of Work.
https://eprint.iacr.org/2020/1117.pdf
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