Explained: What is proof-of-work in blockchain? How does it work? Which cryptocurrencies use the PoW consensus algorithm? What are its advantages and disadvantages? Is it safe for the environment?
You might be asking the above questions to yourself if you are a newbie in learning about cryptocurrencies and blockchain.
Well, be with me through the article if you want to know the proof-of-work mechanism in detail.
Let's Take a Real World Example
As the word suggests, proof-of-work is proof that you did the work. Suppose you and your friends are deciding to host a party. Some of them say that the party should be organized in the evening, some say it should be in the morning the same day while others recommend a different day. All of them stick to their own opinions as their opinions are set according to their workloads or needs.
In such a circumstance, one of your friends suggests something that may be suitable for all of them. Still, no one of them will agree to the suggestion if he cannot prove it to be the most favorable one. Anyhow, he should prove his decision the most accurate to make all of them agree to his decision.
A similar thing goes to a consensus mechanism in a blockchain. Whenever a new transaction goes to happen, the managing members of the blockchain(called the nodes) try to validate the transaction. Now, to validate the transaction, they have to prove it just like we saw in the above example. There are various consensus mechanisms in blockchain like Proof-of-Work, Proof-of-Stake, Proof-of-History, Proof-of-Authority, etc. In this article, I will try to explain the Proof-of-Work consensus mechanism in the simplest words possible.
What is Proof-of-Work in Blockchain?
As we discussed above, this is one of the consensus mechanisms in blockchain and is the most popular one. Whenever a node, the managing member, tries to add a new block to the already existing long chain, he/she has to prove that it is a valid block. He does so by spending a lot of computational power. This computational power is known as the work of the node. This is the reason why this mechanism is known as Proof-of-Work.
The key points of the consensus mechanism are:
- The node requires to spend a large amount of computational power in order to prove its right to add the block.
- It is the earliest consensus mechanism in the crypto world and came into existence with Bitcoin.
- The major cryptocurrencies like Bitcoin, Litecoin, Ethereum 1.0, Dogecoin, etc. use proof-of-work.
- It consumes a lot of electricity and this is the reason many people consider this harmless to the environment.
How Does Proof-of-Work Work?
As you know what a blockchain is. It is a series of blocks that are connected to each other and each block contains a number of transactions. Now, whenever new transactions occur on a blockchain, these get locked in a block that has a specific hash.
Hash is a mathematical function that generates a unique value for any word, character, or simple value. There are various hash functions out there. One of them is SHA-256 which is used in proof-of-work. In this hash function, a unique, 256 bits or 64 characters long value is generated for a particular value.
As I said above each block has a specific hash value and this value refers to that of the previous block. In this way, we can say that each block is linked to its previous block.
To mint a new block, the miners(the participating nodes in mining), try to find the hash value of the block. They do so with the help of computers having a very high computing power, like GPU, ASIC, etc. All the miners compete with each other to solve that puzzle. The one who solves the puzzle earliest receives the right to add a new block.
The hash value generated for a particular keyword does not follow any specific mathematical formula. It is just a random number. So, the miners have to apply a lot of trials and hits in order to find the value and this costs a lot of computing power. This computing power is proof-of-work that the miner has done.
The Pros of Proof-Of-Work
Security is the main advantage of the PoW mechanism. As a lot of computing power has been used in order to mine a block, it is practically impossible to reverse a transaction. If you want to double-spend a transaction, then you will have to spend as much energy as spent by all the miners to mine the block. This is theoretically possible but why would one spend more and gain a very little amount.
If someone, still wants to double-spend a transaction then the whole chain will be corrupted. This will release a lot of cryptocurrencies which will lead to a lost trust of the users in the cryptocurrency and hence the whole market of that cryptocurrency will crash.
The next big advantage is the security from a 51% attack. To prove a block invalid, at least 51% of all the miners need to come to a common agreement. As the miners are distributed in the whole world, it is again practically impossible.
The Cons of Proof-Of-Work
Nothing in the world is a perfect one. Everything has some pros and cons. PoW also has some disadvantages.
In the pros section, we saw that PoW is resistant to 51% attacks. Let's take the example of bitcoin. The percentage of the mining powers held by different mining pools in bitcoin is shown below.
As you see, only three mining groups hold more than 50% of the total mining resources which is not a good sign for the working of Bitcoin. This is just like the centralization of the governing power to a few political groups.
Though these mining pools are working fairly and will continue to do it, the power is somewhat centralized. The Bitcoin blockchain failed to implement the decentralization rules in mining.
One other disadvantage that is considered the worst is the very high consumption of energy by the mining devices. To solve the mathematical puzzles, a lot of computing power is spent. The energy consumption of bitcoin is more than that of some countries like Finland, Switzerland, etc.
Moreover, the calculations done by these computers cannot be used in any research field like science or computer. These are just trial and hits with no real-world uses.
Wrapping Up
The PoS mechanism works on the principle that you have done some computational work that will be proof to your right over others to create a new block. While many claim it to be harmful to the environment, it is a good opportunity for us to shift to renewable energy. The requirements of energy in the mining process cannot be met with conventional sources of energy in the long run.
A large part of the energy requirements by bitcoin also comes from renewable and clean energy and will continue to increase in the future.
Now, it's time to hear from you. What do you think of PoW? Is it better than other consensus mechanisms? What are the other pros and cons of PoW? The comment section is just for you.
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