Blockchain — How Proof-of-Work Works
Proof-of-work is the original consensus algorithm in Blockchain.
Blockchain technology blew the tech world with a simple yet innovative idea of decentralized ledgers. To understand how proof-of-work works, first you need to understand what blockchain is and how it works.
in this article, we will discuss how the proof-of-work algorithm works in the blockchain.
What is blockchain?
Blockchain is a decentralized distributed public ledger. Simply put, blockchain stores information in a chain of blocks. Once recorded, the information is available and accessible to every node in the entire network. The blockchain network is transparent, difficult to exploit, and does not require third-party involvement in transactions.
What makes blockchain different?
Every block in the blockchain gets a hash value (an encrypted output of fixed length), which is calculated when the block is created. The hash works like a fingerprint. It’s unique and used to identify the block. Each time someone makes any changes in the block, the hash is re-calculated and assigned a new value, which is shared with other nodes in the network.
How does blockchain work?
Blockchain uses a hash or Merkle tree to store data. Each node in the network stores three things, a hash of the previous and next block and some data. The data in each block varies for distinct blockchains. For instance, bitcoin stores the following details about each transaction,
- Who is the sender?
- Who is the receiver?
- What amount is sent/received?
What is consensus in blockchain, and why is it important?
Blockchain uses a decentralized network, which means there is no single authority figure to make important decisions. All peers in a network are unfamiliar, and It’s still considered secure due to the consensus algorithm. It’s a process designed to get all nodes on the network on the same page and reach an agreement. It’s used to establish trust among peers in the network.
What is Proof-of-Work (PoW):
As we discussed earlier, proof-of-work is a consensus algorithm for blockchain. There are multiple consensus algorithms in blockchain, but PoW is the most popular among them and is currently used in 467 cryptocurrencies.
What makes PoW different?
Proof of Work was first introduced in Bitcoin as a consensus algorithm, but it’s not a particularly new concept. The initial PoW was developed in 1993 to protect users from DDoS (Distributed Denial of Service) attacks and spam from the internet. Proof of work in a blockchain does two things, confirm transactions, and create new blocks in the chain.
How Proof of Work works?
Two entities are participating in the PoW, the miner, and the previous nodes. Blockchain consists of multiple nodes that are used to validate transactions and create new blocks.
To get a new block, miners use their computational resources to solve complex mathematical puzzles. These puzzles are difficult to solve but easy to verify. The successful miner broadcasts the result to the network, and upon verification, a new block is formed, and the miner receives a block reward (12.5 BTC) and a transaction fee. A new block is added every 10 minutes to the chain, and the block reward is halved every four years.
Why is the PoW considered secure?
The major reason why PoW is considered secure is that mining requires long hours and tremendous resources. It’s possible to breach a blockchain network, but it is useless to take effort, time, and money.
The downside of PoW:
PoW is extremely secure and reliable, but there are some downsides to it. Mining is a long, expensive, and tedious process. It requires high computation power and specialized hardware to run the algorithms. Over time, You’ll also get a big fat electricity bill as the power consumed by these computers is no joke. It’s costly to manage the mining resources over time.
An individual cannot do the process of mining. Mining pools are used where miners pool their resources and share the profit. Even if you solve a puzzle, get a block, and the reward, the computations are purely for validation purposes and not applicable in any other field.
A few other consensus algorithms in the blockchain:
Proof of Work is not the only consensus algorithm in the blockchain. Among the other algorithms, PoS is the most common. A few other algorithms are,
- Proof of Stake (PoS).
- Proof of Deposit (PoD).
- Proof of Capacity (PoC).
Proof of Work vs. Proof of Stake:
Proof of stake is another famous consensus algorithm used in 364 cryptocurrencies. PoW requires a ton of computational and power resources, while PoS creates blocks based on how much you already have. In simple words, if proof of work uses competence to judge credibility, proof-of-stake makes sure that your money is at stake in case of any wrongdoings. So, PoW assigns blocks to the one with the highest stakes into the chain