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What is Proof of Work (PoW) in Blockchain?
What is Proof of Work (PoW)?
Proof of Work (PoW) is a blockchain consensus mechanism that requires significant computational effort from a network of devices. The concept was adapted from digital tokens by Hal Finney in 2004 through the idea of ”reusable proof of work” using the 160-bit secure hash algorithm 1 (SHA-1).
After its introduction in 2009, Bitcoin became the first widely adopted application of Finney’s PoW idea (Finney was also the recipient of the first bitcoin transaction). Proof of work is also the mechanics used in many others cryptocurrencies.
Key points
- Proof-of-work (PoW) is a decentralized consensus mechanism that requires network members to commit to solving a cryptographic puzzle.
- Proof of work is also called mining, referring to receiving a reward for work performed.
- Proof-of-work enables secure peer-to-peer transaction processing without the need for a trusted third party.
- Proof of work on a large scale requires large amounts of energy, which only increases as more and more miners join the network.
Understanding proof of work
Proof-of-work is a concept used in some public blockchains to demonstrate that a program has done the work required to propose a new block for the chain. It is commonly called a consensus mechanism because, ultimately, network consensus is reached after there is evidence that the work was done honestly (in this case, “honestly” means there were no attempts to alter the data).
Proof of work is provided by sending the information in a block through a hashing algorithm, then adjusting the variable fields until it reaches a hexadecimal number that has a lower value than the network difficulty goal. This serves as evidence that the program spent computational effort hashing the block until a solution was reached.
Proof of work and consent
Here’s a quick rundown of proof of the work process on the Bitcoin blockchain.
First, the worker, called a miner, creates a temporary file (a block). If he wins the competition to find a winning hash, this file will be stored on the blockchain. The block has the following four fields:
The block header contains the following fields:
- Software version
- Hash of the previous block
- Merkle root
- Timestamp
- Difficulty objective
- There is not
The mining program assembles this block and inserts the transactions it has prioritized into the transactions field. Continuously adjust the there is not and the extra nonce (which is part of the coinbase transaction in the Merkle tree) and sends the information into the block via a hashing algorithm.
It repeats this process until it finds a solution, which is less than or equal to the difficulty target. The difficulty target is set such that a certain number of hashes per second must be attempted before a solution is found. For example, on May 17, 2024, block 843,900 had a difficulty target of 83.148 T, or 83.148 trillion attempts per second per miner.
The win hash for that block it was:
000000000000000000033028b3c8296ed776653032030cd01290f4345f5a9b6e
This hash provided the network with proof that the miner did the work. The block was added to the blockchain and the network began the process of reaching consensus.
Consent
Consensus, the attribute most commonly associated with blockchain proofs, is achieved after the block is closed and added to the chain. While working on proposing new blocks and generating winning hashes, each miner also validates each new block as it is added. Each miner broadcasts to the network that the confirmed block is valid.
New blocks use the hash of the previous block’s header, creating a chain of proof that leads to network consensus. This is why these tests are called consensus mechanisms, because they form the basis of how consensus is reached.
Proof of work and proof of stake
The two most popular consensus mechanisms are proof-of-work and test of the bet. Bitcoin’s main competitor, Ethereum, used proof of work on its blockchain until September 2022, when the long-awaited transition to proof of stake was made. Here are some of the key differences between the two.
Work test
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Validation is performed by a network of miners
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Bitcoin paid as a reward and for transaction fees
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The competitive nature uses a lot of energy and computing power
Stake test
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Validation is carried out by participants offering ether as collateral
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Ether is paid only for transaction fees
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Less computing power and energy used
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Consensus is reached faster because there are no difficulties
special considerations
Proof-of-work drawing is a competitive process, with many participants hoping for a profitable outcome. Since minable cryptocurrency has a market value, companies have emerged and surpassed most of the computing power used by proof-of-work blockchains.
For example, on May 17, 2024, FoundryDigital had the most hashing power on the Bitcoin network, 175 exa hashes per second (EH/s) out of a network total of 673 EH/s. Foundry Digital is owned by Digital Currency Group, a venture capital firm that has funded or invested in hundreds of cryptocurrency projects.
Bitcoin and other cryptocurrencies that use proof of work were designed to be used and hosted by individuals for their benefit. However, individuals have been pushed out of processes by companies that have centralized them for profit.
What is the difference between Proof of Work and Proof of Stake?
PoW requires that nodes in a network provide proof that they have expended computational power (i.e. work) to reach consensus in a decentralized way and to prevent bad actors from taking over the network. Proof of participation requires collateral in the form of cryptocurrency staked to become a trusted participant.
What is an example of proof of work in a blockchain?
Bitcoin Cash and Litecoin both use proof-of-work as consensus mechanisms.
Why do you need proof of work?
Current financial systems are built around the need for trust. But when it comes to finances, it has happened time and time again that some people can’t be trusted to do the right thing. A proof eliminates the need to trust others to act honestly because it is a code. Code isn’t tempted by money, so if it’s written with good intentions and can’t be changed, it can replace our need to trust people we don’t know.
The bottom line
Proof-of-work is a consensus mechanism used by many cryptocurrencies to validate transactions on their blockchains and assign tokens for participation in the network. This is a competitive process that uses publicly available transaction information to attempt to generate a hexadecimal number lower than the network’s target for that mining period.
The comments, opinions and analyzes expressed on Investopedia are for informational purposes only. Read ours warranty and exclusion of liability for more information. As of the date this article was written, the author owns BTC.