What Proof-of-Work (PoW) Is All About?

Proof-of-work (PoW) has several features that are directly responsible for its widespread usage. The PoW consensus algorithm includes authenticating a transaction through the mining process. This consensus protocol is an important feature of blockchain. These features are a part of the protocol. It significantly differs from Proof of Stake (PoS) and is the oldest blockchain mechanism.

How Proof-of-Work (PoW) Works?

The proof-of-work is a consensus mechanism that is required for confirming and recording cryptocurrency transactions. All cryptocurrencies use blockchain technology and with PoW each develops a specific hash. A crypto miner is supposed to generate a target hash that is either equal to or less than the block, once confirmation is done. Miners use mining devices that lead to the generation of computations. The first miner aims to target hash as the miner is the only person who can receive crypto rewards or update the blockchain. 

Users often purchase and sell cryptocurrency and data from these groups. New crypto transactions are collected together, but there is no pattern per se. There is a degree of randomness in deciding which miner wins the right to process the block. 

Differences With Proof-of-stake (PoS)

Crypto users often use the terms “proof-of-stake” and “proof-of-work” interchangeably. However, the two terms mean entirely different things. In terms of consensus mechanism, an alternative proof-of-stake was launched in 2012. PoS unlike PoW chooses transaction validators on how many coins they have staked or locked up to the network. 

PoS needs less computing power and is more scalable. It is a fact that it can process transactions faster and its fees are usually lower. It is also an undeniable fact that PoS currencies are more eco-friendly than PoW. As PoS does not need expensive hardware, it is much easier to start staking cryptocurrencies. However, from a security perspective, PoW has a huge edge because of its better transparency features. PoW does not allow large crypto holdings to wield too much power, unlike PoS. 

Pros and Cons of PoW

Higher levels of security standards are the greatest advantage of PoW. Decentralization is an integral part of the verification process.  In this system, all transactions are verified and broadcast to the entire network. If someone sends Bitcoin to a user, the network records and broadcasts the transaction. Therefore, the verification process boosts transparency considerably. Crypto miners can earn rewards easily. 

The other notable advantage is that PoW helps in preventing double spending under ordinary circumstances. For instance, because of PoW, there is no central monitoring authority that manages transactions, therefore double-spending is a real risk because then that currency would lose all value. Therefore, a person sending Bitcoin cannot spend it twice.

The major cons of PoW is inefficiency. Transaction speeds are slower and fees are more expensive. The most common criticism of PoW is its high energy usage. According to some estimates, Bitcoin alone consumes 150 terawatt hours annually.  Crypto mining mandatorily needs expensive hardware. 51% attack vulnerability exists and is a notable disadvantage. For example, if one entity could take over 51% of Bitcoin’s mining capability, then it can change the rules and may even allow double-spending or block confirmation of newer transactions.

Also Read- A Brief Guide to Proof-of-stake (PoS)

Bottom Line

Proof-of-work (PoW) is gradually becoming less popular because the energy inefficiency disadvantage is a real drawback. Although, security-wise it is one of the most secure standards, there are doubts whether it can stand the test of time. This is why many blockchain developers are relying on newer systems such as the proof-of-stake and proof-of-history to improve this mechanism’s innovations. Moreover, users must first analyze their needs and then decide whether PoW is appropriate or not, as it continues to remain popular among business entities.