Proof of Work

Today, the majority of cryptocurrencies use proof-of-work consensus as their consensus mechanism. In the blockchain, the algorithm verifies the transaction and creates a new block. Cynthia Dwork and Moni Naor first proposed Proof of Work (PoW) in 1993 and Satoshi Nakamoto applied it in the Bitcoin paper in 2008. It was Markus Jakobsson and Ari Juels who coined the term “proof of work” in 1999.

Currently, PoW is used by cryptocurrencies such as Ethereum, Litecoin, and Bitcoin.

Purpose of PoW

A consensus mechanism’s purpose is to bring all nodes into an agreement, that is, to trust one another, in an environment where nodes do not trust one another.

  • After validating all of the transactions in the new block, it is added to the blockchain.
  • The block with the greatest block height will be added to the chain (see blockchain forks to understand how multiple chains can exist at a point in time).
  • Miners (special computers on the network) perform computation work to solve a complex mathematical problem to add the block to the network, which is why it is called Proof-of-Work.
  • The mathematical problem becomes more complex over time.

Features of PoW

There are primarily two characteristics that have contributed to the widespread popularity of this consensus protocol:

  • It is difficult to find a solution to a mathematical problem.
  • It is simple to verify the correctness of that solution.

Challenges with PoW

The Proof-of-Work consensus mechanism has the following flaws:

    • The 51% risk:If a controlling entity owns 51% or more of the network’s nodes, the entity can corrupt the blockchain by gaining control of the majority of the network.
    • Time-consuming:Miners must examine a large number of nonce values to find the correct solution to the puzzle that must be solved to mine the block, which is a time-consuming process.
    • Consumption of resources:Miners use a lot of computing power to solve a difficult mathematical puzzle. It results in the waste of valuable resources (money, energy, space, hardware). By the end of 2018, it is expected that 0.3% of the world’s electricity will be spent on transaction verification.
    • Transaction is not instantaneous:Transaction confirmation takes 10-60 minutes. As a result, it is not a real-time transaction because it takes time to mine the transaction and add it to the blockchain, thereby committing the transaction.