Abbreviation: PoW.

What is Proof of Work?

Proof of Work is the requirement for a service user to prove that they have performed a costly action (usually a computational cost of performing mathematical operations) in order to deter network attacks such as spam and dedicated denial of service (DDoS).

In relation to Bitcoin, Proof of Work refers to calculations that must be performed by the nodes of a cryptocurrency network, which are the computers that contribute towards forming a distributed consensus regarding the network state – called the ‘miners’.

Miners are rewarded for this with newly generated coins and often with the transaction fees from the rest of the network.

Both a miner’s influence over the network consensus and their rewards are determined by how many of these transactions they can perform, usually measured in hashes per second.

The end goal of this is that there is a cost for submitting false information to the network, and the cost of submitting enough false information to shift the network consensus in your favour is loosely correlated with the value of the network – which is presumed to be prohibitively expensive.

Proof of Work Algorithms

There are various different algorithms which can be used for Proof of Work within a cryptocurrency. Bitcoin, and many of its clones, use an algorithm called SHA-256. Specially designed ASIC computers have been built to perform this much more efficaciously than a regular computer, making mining SHA-256 cryptocurrencies on a personal computer uneconomical. Many newer algorithms, such as Scrypt, X11, or CryptoNote, were designed to be more suitable for use on personal computers.

A Proof of Work algorithm must be computationally costly to perform, but it must also be easy to check whether the calculation has been performed.

Proof of Work Mining: Blocks, Rewards, & Difficulty

In a cryptocurrency such as Bitcoin the network transaction history is divided into up into blocks spanning a set amount of time – in Bitcoin’s case this is 10 minutes. Every time a miner performs a PoW calculation, or hash, they get a very, very small chance of mining the next block and getting its rewards. The chance of this happening, also called the mining ‘difficulty’ is automatically adjusted by the network to keep the average block time at 10 minutes. Because each hash is very easy to perform and comes with just a very low probability of successfully mining a block, it is very hard to predict who will mine any given block.

Mining difficulty is adjusted by changing the ‘target’ value. In order to be valid its hashed value must be lower than the target. Lowering the target therefore serves to increase difficulty, whilst raising it will decrease the difficulty.

Additional Technical Descriptions

Still Confused? Try This: Inside Bitcoin’s Proof of Work Algorithm or watch this video:

History of Proof of Work

A computer scientist name Hal Finney was the first to introduce the idea of attaching value to ‘reusable proof of work’ as a monetary token. He implemented this concept in combination with hashcash software.

It wasn’t until Satoshi Nakamoto developed a decentralized P2P protocol for tracking transfers of coins and used it to replace the more centralized method of preventing double spending used in Finney’s system that the idea of re-usable proof of work blocks as currency units gained more widepsread attention.

Cryptocurrency Alternatives to Proof of Work

Proof of Work is performed simply to attach a cost towards participation in consensus forming. There is therefore no useful work being performed by Proof of Work calculations. A huge number of these calculations are required to secure a network such as Bitcoin, and this burns through a very large amount of electricity. This is another area in which there have been many developments from newer cryptocurrencies trying to improve on what they see as the wasteful nature of PoW. Some cryptocurrencies try to develop useful work that can be performed for this function, whilst others have completely remove Proof of Work in favour of alternatives such as Proof of Stake.

Additional Reading

Proof of Work in Cryptocurrencies: A Brief Evolution

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