Proof of Work: Explained

What is Proof of Work (PoW)?

Proof-of-work is the algorithm that secures many cryptocurrencies. More specifically, it solves the "double-spending problem," which is trickier to solve without a leader in charge. If users can double-spend their coins, this inflates the overall supply, debasing everyone else's coins and making the currency unpredictable and worthless.

Double-spending is an issue for online transactions because digital actions are very easy to replicate, which is what makes it trivial to copy and paste a file or send an email to more than one person.

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How proof-of-work works?

Bitcoin is a blockchain, which is a shared ledger that contains a history of every Bitcoin transaction that ever took place. This blockchain, as the name suggests, is composed of blocks. Each block has the most recent transactions stored in it.

Proof-of-work is a necessary part of adding new blocks to the Bitcoin blockchain. Blocks are summoned to life by miners, the players in the ecosystem who execute proof-of-work. A new block is accepted by the network each time a miner comes up with a new winning proof-of-work, which happens roughly every 10 minutes.

Finding the winning proof-of-work is so difficult the only way to provide the work miners need to win bitcoin is with expensive, specialized computers. Miners will earn bitcoin if they guess a matching computation. The more computations they churn out, the more bitcoin they are likely to earn.

What computations are the miners making exactly? In Bitcoin, miners spit out so-called "hash," which turns an input into a random-looking string of letters and numbers.

The goal of the miners is to create a hash matching Bitcoin's current "target." They must create a hash with enough zeroes in front. The probability of getting several zeros in a row is very low. But miners across the world are making trillions of such computations a second, so it takes them about 10 minutes on average to hit this target.

Whoever reaches the goal first wins a batch of Bitcoin cryptocurrency. Then the Bitcoin protocol creates a new value that miners must hash, and miners start the race to find the winning proof-of-work all over again.

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Mining power in proof of work

Let's delve into the intricate workings of the PoW consensus algorithm, especially its involvement in transaction verification via the mining mechanism.

The PoW, or Proof of Work consensus model, hinges on cracking a computational enigma to facilitate the birth of new blocks within the Bitcoin blockchain. This intricate act goes by the name 'mining'. Are those digital nodes actively participating in this activity? They're aptly termed 'miners'.

Why do they mine, you ask? The allure lies in the potential economic windfalls. Miners in the thick of competition stand to gain a hefty 6.25 bitcoins plus a nifty transaction fee as their prize. However, there's a twist. Over time, this juicy reward dwindles, shrinking to half its original size.

The steps of authenticating transactions to be embedded in the new block, streamlining these transactions in a temporal sequence, and unveiling the freshly mined block to the global network? Surprisingly, these aren't resource hogs.

The real power guzzler is in unlocking the 'cryptographic challenge', a vital step to connect the nascent block to its predecessor in the authenticated blockchain. Once a miner hits the jackpot with the correct solution, it's shared with the entire digital cosmos, and in return, they bag a crypto jackpot courtesy of the PoW framework.

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Rewards from Mining

As it stands, the fortunate miner who emerges victorious in the mining contest is richer by 6.25 bitcoins. But there's a cyclical pattern at play. Every four years, this reward undergoes a halving. Given the current trajectory, the impending cut is on the horizon around 2024.

Here's an interesting phenomenon: As more miners throw their hats in the ring, the time to unearth a new block shrinks. This expedited pace ensures fresh blocks are unearthed at a brisk rate. But there's a balance to be struck.

To maintain a rhythm where a new block is discovered roughly every 10 minutes - a duration Bitcoin's architects believe is pivotal to sustain a regulated and tapering inflow of new coins until the ceiling of 21 million coins is breached (anticipated around 2140 considering the current pace) - the Bitcoin network constantly recalibrates the mining difficulty.

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Where PoW is usually implemented?

The most famous application of PoW is Bitcoin. It was Bitcoin that laid the foundation for this type of consensus. The puzzle is Hashcash. This algorithm allows changing the complexity of a puzzle based on the total power of the network. The average time of block formation is 10 minutes. Bitcoin-based cryptocurrencies, such as Litecoin, have a similar system.

Proof-of-work vs. proof-of-stake

At a high level, proof-of-stake has the same end goal as proof-of-work: to help the decentralized network reach consensus securely. But it has some differences in process and personnel:

• Proof-of-stake switches out the importance of computational power for staked ETH.
• Proof-of-stake replaces miners with validators. Validators stake their ETH to activate the ability to create new blocks.
• Validators don't compete to create blocks, instead they are chosen at random by an algorithm.
• Finality is clearer: at certain checkpoints, if 2/3 validators agree on the state of the block it is considered final. Validators must bet their entire stake on this, so if they try to collude down the line, they'll lose their entire stake.

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Pros and cons of Proof of Work

Pros:

- Neutral: No ETH required to start.

- Block rewards can increase balance from 0ETH.

- Time-tested, securing Bitcoin and Ethereum for years.

- Easier to implement compared to proof-of-stake.

Cons:

- High energy consumption; environmentally detrimental.

- Mining demands specialized, expensive equipment.

- Potential for mining pool domination, leading to centralization and security threats.

Proof-of-work coins list

Here is a list of proof-of-work coins:

1. Bitcoin

2. Dogecoin

3. Litecoin

4. Bitcoin Cash

5. Monero

6. Ethereum Classic

7. Kaspa

8. Zcash

9. Ravencoin

10. Dash

11. Decred

12. Siacoin

13. EthereumPoW

14. Conflux Network

15. Kadena

16. Nervos Network

17. DigiByte

18. Flux

19. Syscoin

20. Horizen

21. Groestlcoin

22. Komodo

23. BEAM

24. ERGO

25. ByteCoin

26. Bytom

27. MonaCoin

28. Namecoin

29. Firo

30. Hathor

31. CounterParty

32. Bitcoin Diamond

33. Aeternity

34. Litecoin Cash

35. Vertcoin

36. Bismuth

37. Quantum Resistant Ledger

38. AEON

39. wownero

40. ZClassic

41. Omni

42. BitcoinZ

43. PrimeCoin

44. Wood Coin

45. Ubiq

46. Enecuum

47. FeatherCoin

48. NewYorkCoin

49. DigitalNote

50. QuarkCoin

Conclusion

Proof-of-Work (PoW) stands as a pivotal algorithm that bolsters the security infrastructure of several cryptocurrencies. By addressing the "double-spending" conundrum inherent to the digital nature of cryptocurrencies, PoW ensures the trustworthiness and integrity of transactions. The cryptographic puzzles that miners solve to add blocks to blockchains like Bitcoin are computationally intensive, demanding robust hardware resources.

While Bitcoin remains the foremost application of PoW, many other cryptocurrencies also rely on it. However, its environmental footprint, intensified by its energy consumption, prompts concerns. The advent of alternatives like proof-of-stake (PoS) indicates a quest for more sustainable consensus mechanisms, but PoW's resilience and tenure in the cryptocurrency arena affirm its significance.

Also Read: What Is A Private Key

Frequently Asked Questions [FAQs]

Q: What is an example of proof of work?
A: Bitcoin is the most renowned example of a cryptocurrency utilizing the proof-of-work algorithm.

Q: What does proof of work require?
A: Proof-of-work requires miners to solve computationally intense puzzles, ensuring the addition of new blocks to a blockchain.

Q: What is the difference between proof of work and POS?
A: Proof-of-work emphasizes computational power to add new blocks, whereas proof-of-stake prioritizes ownership (staking) of the cryptocurrency, replacing miners with validators who are chosen at random.

Q: What is ethereum proof of work?
A: Ethereum originally utilized the proof-of-work consensus mechanism similar to Bitcoin, but there are plans to transition to proof-of-stake with the Ethereum 2.0 upgrade.

Q: Why do miners follow the rules?
A: Miners adhere to the rules as it ensures the legitimacy of the blockchain, making their mining rewards valuable.

Q: Why is proof-of-work needed?
A: Proof-of-work is essential to prevent double-spending in decentralized networks, ensuring transaction integrity and the security of the blockchain.

Q: Who invented proof-of-work?
A: The concept of proof-of-work was introduced by Cynthia Dwork and Moni Naor in 1993, but it was popularized by Bitcoin's creator, Satoshi Nakamoto.

Q: What are the problems with proof-of-work?
A: Some challenges with proof-of-work include its vast energy consumption, environmental concerns, the need for specialized equipment for mining, and potential risks of mining pool centralization.

Q: Why does more mining power mean more security?
A: Greater mining power signifies a higher number of miners and computations, making it exceedingly difficult for malicious actors to alter the blockchain, thus enhancing security.

Q: Which cryptocurrencies use proof-of-work?
A: Bitcoin, Litecoin, and many others use proof-of-work. Bitcoin is the most notable, but numerous other cryptocurrencies also implement this consensus mechanism.

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