What is Proof of Work? Explained.


Proof of Work (PoW) is an approved algorithm used in the advanced Bitcoin implementation. In a Blockchain system, new transactions are intermittently added by packaging these transactions into a block. This block is added to Blockchain.


Users send each other digital tokens (for example, Bitcoins). All these transactions are stored in a public ledger that was executed in Blockchain. But before adding transactions to the ledger, they must be confirmed. There are special nodes in the network called peers or more popular miners who are accountable for approving the transactions and adding them to the blocks. A block usually contains multiple transactions.

How It Works?

When a new block needs to be introduced in Blockchain, all the pairs in the network try to solve a puzzle. Whoever solves the puzzle first receives a reward and the block is added to Blockchain. The puzzle is nothing more than finding a SHA-256 hash of block data given in such a way that the hash value must start with a certain number of zeros. This is known as objective hash.

A random number (called nonce) is attached to the original data and the same keeps trying different then until it finds the target hash. The current objective in Bitcoin is 17 zeros. Setting a higher target value will make it harder to find a required hash. This requirement of a certain number of leading zeros in the hash is known as objective.

Finding the target hash requires vast computing power, but verifying it is easy. Assume that pair A finds the target hash and sends it to pair B, pair B can easily verify it because the nonce value is also known.

Are there any disadvantages?

The proof of work is a great consensus algorithm, but it is not perfect. To run PoW we have to use large amounts of electricity and computer power only for brute force hashes. The power used for PoW is just a waste of resources. Imagine if any cryptocurrency that uses PoC, such as Bitcoin, goes into general adoption. How much electricity would be used to run the network?

The second problem is centralization and mining groups. Someone who extracts with only one CPU will not have a good chance of getting a reward, but someone who has a mining group with a thousand CPUs will have a better chance. Today, almost 50% of Bitcoin hash power comes from some mining groups. That means that only a few people have to meet at the same desk to agree on a 51% attack and change the blockchain if they have a reason to do so. This can form a centralized PoW and goes contrary to the idea of ​​decentralization.

In addition, it is important to mention that more than 70% of mining energy comes from China. The pools are being centralized because the cost of electric power is not the same in all countries. We cannot expect large mining groups in countries where it is expensive, but we are sighting many groups in countries where it is inexpensive.