What is Proof of Work (PoW) in Blockchain – 2022 Guide

Newbie blockchain users frequently ask that question: what is the “proof of work” in blockchain and why is it so cool? Let’s explain that shortly.

Proof-of-Work, or PoW, is the consensus reaching algorithm in blockchain. They use it to confirm transactions and create new blocks. Actually, it is one of click here letting miners compete with each other for finishing transactions and getting rewards. Network users send digital tokens to each other, and then all transactions unite into blocks and get recorded into an allocated registry (the blockchain).

Still, there is a need to be cautious when confirming operations and organizing blocks. The network functioning is based on solving complex math tasks and on the possibility to easily prove the gained solution.

What is That “Math Task”?

That is one of the problems requiring significant computing powers. There are many problems like that:

  • hash-functions, or attempts to find the input while knowing the output data;
  • Decomposition of an integer into multipliers;
  • “Excursion puzzle”: when a server suspects the DoS-attack, it requires the client to calculate hash-functions, sometimes in particular order, then it is the problem of calculating hash-function chain meanings.

In case of the PoW, they use hashing. As the network grows, problems become more and more complicated. Algorithms of hashing require more and more computing powers, so the complexity of a task is a relevant trouble.

How Does It Work?

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The speed and accuracy of the blockchain depend on it. But the task shouldn’t be too complicated. Otherwise, generating a single block will be time-taking, and many incomplete transactions will stay in the network. In case it is not possible to solve the task during a predicted time, block creation will be just a happy accident. In case the problem can be solved too easily, the system becomes vulnerable before fraud, spam and DDoS-attacks.

It should be easy to check a solution. Otherwise not all nods will be able to confirm the calculation correctness. This means, they’ll need to trust other nods, and that breaks the one of the most important blockchain principles – transparency.

How Do They Use it in Blockchain?

Miners solve the task, form a new block and confirm transactions. The difficulty of a task depends on the number of users, the current network load and performance capabilities. Additionally, the hash of every block contains that of a previous one to increase the level of safety and make it impossible to break the order of created blocks.

In case the miner successfully solved the task, a new block is formed. There, they place the other set of transactions, all of them are perceived as confirmed ones.

Where Do They Use Proof of Work?

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They use it in multiple cryptocurrencies. Of course, the most famous, popular and “strong” one among them is Bitcoin. It was Bitcoin that started the tendency, too.

Here, the Hashcash algorithm is used. It lets changing the complexity of a task depending on the overall network performance. Average time to form a block is 10 minutes. The system like that is realized in other cryptocurrencies which are likely to Bitcoins (Lightcoin, for instance). Ethereum is the other big project where PoW is used. Taking into account the fact that almost 75% of all blockchain projects use this platform, one can confidently state that the consensus model with the proof of work is the main algorithm of their functioning.

Why PoW?

Its main advantages are DDoS-attack protection and low influence of cryptocurrency owned by miner on the mining possibilities. PoW creates certain limitations on actions that participants can make, as task solving is effort-taking.

An effective attack will also require immensely high-performance hardware and time investments. This means it is possible but not profitable due to high expenses. It doesn’t matter how much money you’ve got in the wallet. What’s important is that you have big computing powers to solve tasks and generate new blacks.

So, big capital holders can’t make decisions for all the network.

What Are the Lacks of this Algorithm?

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Its main problems are:

  • Huge expenses;
  • “Useless” computing;
  • “51% Attack”

To perform complex calculations, specialized and expensive hardware is required. Expenses grow up without any way to control them, and mining becomes possible only for big groups of miners.

Additionally, specialized computers have huge electricity consumption enlarging the expenses even more. The result is gradual centralization of the system, as this way is the most profitable one. And this is exactly what is happening with the Bitcoin.

Miners complete work by creating blocks while consuming huge amounts of electricity, but the calculations they perform are completely useless in their origin. Of course, the network safety is guaranteed, but the results can’t be used in science or business.

What is the 51% Attack?

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The 51% attack, or the majority attack becomes possible when a single user or a group of them controls the most part of the network’s powers. This gives them the possibility to control events happening inside the network. Doing so, they can monopolize the creation of new blocks and get all the rewards, as they have enough power to prevent other miners from completing new blocks. Additionally, the majority can cancel transactions.

Let’s suppose that Mary sent some money to her friend Andy through the blockchain. Mary participates in the 51% attack, while Andy doesn’t. Their transaction gets into the block, but attackers don’t let it finish. What occurs is that the blockchain gets bifurcated.

Then, the attackers join one of the branches. As they have more computing power at their disposal, their chain contains more blocks.

The network accepts the longer chain while the shorter one gets ignored. This means, the deal between Mary and Andy never happened, and Andy didn’t receive the money. This is how perpetrators can cancel transactions.

Still, the 51% attack will doubtfully be profitable. It requires huge computing powers. Additionally, right after the fact of it discloses, the network is compromised and users begin leaving it. In turn, this process lowers the price of the cryptocurrency for sure.

That’s why the Proof of work algorithm is thought to be extremely reliable.