proof of work

what is a 'proof of work'?

Proof of Work or simply PoW is a consensus concept allowing people to mine or rather verify transactions according to how much effort (computing power) they are putting in to solve an algorithmic issue. Proof of Work is the consensus principle used in the Bitcoin Blockchain. It is, besides Proof of Stake, among the most popular consensus concepts implemented into a wide range of cryptocurrencies. 

proof of Work in a Blockchain

The Proof of Work concept was invented by Cynthia Dwork and Moni Naor long before the invention of Bitcoin in the year 2008. This concept was initially intended to prevent computers from spam mails. 

The idea was that in order to send an e-mail, the sender have to put some sort of computing power in order to deliver it. As for normal mails this was not an issue, it prevented mass spam mails from being sent as it would have needed massive amounts of computing power to deliver the mails.

Bitcoin was the first cryptocurrency making use of the same principle but in a different context. In terms of a Blockchain the concept is providing efficient resource allocation within the network. For every transaction miners verify, they get a reward in Bitcoin. Transactions can be verified with solving a random algorithmic problem requiring computing power. If you think further, the one with the highest mining power (hash rate) has the highest probability to verify transactions and getting more rewards in return. The proof of work concept is creating incentives that miners supply the network with computing power, keeping the Blockchain self-verifying and safe.

However the Proof of Work concepts has some downsides. All miners providing computing power need enormous amounts of electricity. The current electricity consumption of Bitcoin is estimated to be around the energy demand of Ireland.

Proof of work vs. proof of stake

Proof of Work (PoW) and Proof of Stake (PoS) are the most popular verification concepts used in a wide range of cryptocurrencies. We want to compare both concepts to identify differences, positives and negatives.

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