Decentralization was a key part of the original vision for cryptocurrencies. To accomplish that, there needed to be a way to confirm transactions without the involvement of financial institutions. The first solution to this challenge was called proof of work.
Proof of work (PoW) is a form of adding new blocks of transactions to a cryptocurrency's blockchain. The work, in this case, is generating a hash (a long string of characters) that matches the target hash for the current block. The crypto miner who does this wins the right to add that block to the blockchain and receive rewards.
Cryptocurrency started with proof of work since it's the consensus mechanism used by the first cryptocurrency, Bitcoin (BTC 0.26%). It's well-known for its security but also for inefficiency and a heavy environmental impact.
By understanding proof of work, you'll have a better understanding of the coins that use it. This can also help you choose where to put your money when investing in crypto. Keep reading for a full explanation of proof of work.
How the proof-of-work model works
The proof-of-work model is a consensus mechanism used to confirm and record cryptocurrency transactions.
Every cryptocurrency has a blockchain, which is a public ledger made up of blocks of transactions. With proof-of-work cryptocurrencies, each block of transactions has a specific hash. For the block to be confirmed, a crypto miner must generate a target hash that's less than or equal to that of the block.
To accomplish this, miners use mining devices that quickly generate computations. The aim is to be the first miner with the target hash because that miner is the one who can update the blockchain and receive crypto rewards.
The reason proof of work in cryptocurrency works well is because finding the target hash is difficult but verifying it isn't. The process is difficult enough to prevent the manipulation of transaction records. At the same time, once a target hash is found, it's easy for other miners to check it.
Example of proof of work
Here's an example of how Bitcoin uses proof of work to maintain the integrity of its blockchain.
When Bitcoin transactions occur, they go through a security verification and are grouped into a block to be mined. Bitcoin's proof-of-work algorithm then generates a hash for the block. The algorithm Bitcoin uses is called SHA-256, and it always generates hashes with 64 characters.
Miners race to be the first to generate a target hash that's below the block hash. The winner gets to add the latest block of transactions to Bitcoin's blockchain. They also receive Bitcoin rewards in the form of newly minted coins and transaction fees. Bitcoin has a fixed maximum supply of 21 million coins, but, after that, miners will continue receiving transaction fees for their service.
The proof-of-work algorithm used by Bitcoin aims to add a new block every 10 minutes. To do that, it adjusts the difficulty of mining Bitcoin depending on how quickly miners are adding blocks. If mining is happening too quickly, the hash computations get harder. If it's going too slowly, they get easier.
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Proof of work vs. proof of stake
Proof of work was the first cryptocurrency consensus mechanism. An alternative, proof of stake, came out in 2012 with the launch of Peercoin (CRYPTO:PPC). It chooses transaction validators based on how many coins they've staked, or locked up, to the network.
Because proof of stake doesn't require nearly as much computing power as proof of work, it's more scalable. It can process transactions more quickly for lower fees and with less energy usage, making proof-of-stake cryptocurrencies more environmentally friendly. It's also much easier to start staking crypto than mining since there's no expensive hardware required.
However, proof of work is more proven from a security perspective. One potential problem with proof of stake is that parties with large crypto holdings could have too much power, which is an issue that proof of work doesn't have.
Advantages and disadvantages of proof of work
Here are the biggest advantages and disadvantages of proof of work:
Chart by author.| Pros | Cons |
|---|
| High level of security. | Inefficient with slow transaction speeds and expensive fees. |
| Provides a decentralized method of verifying transactions. | High energy usage. |
| Allows miners to earn crypto rewards. | Mining often requires expensive equipment. |
Proof-of-work coins
Here are some of the notable cryptocurrencies that use proof of work:
- Bitcoin is the first cryptocurrency since it launched in 2009. It introduced the concept of proof of work in cryptocurrency, which would later be adopted by many future coins.
- Litecoin (LTC 1.35%)is one of the earliest altcoins, or alternatives to Bitcoin. Launched in 2011, it was based on Bitcoin's code and offers improved transaction speeds.
- Dogecoin (DOGE 0.1%) is a cryptocurrency that launched in 2013 and is based on the Doge meme. Despite starting as a joke, it would go on to gain a loyal following.
Proof of work was the consensus mechanism of choice for early cryptocurrencies that needed a secure, decentralized way to process transactions. Although proof of stake has since emerged as a less energy-intensive alternative, proof of work is still used by many major coins.
Lyle Daly has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
FAQs
To accomplish that, there needed to be a way to confirm transactions without the involvement of financial institutions. The first solution to this challenge was called proof of work. Proof of work (PoW) is a form of adding new blocks of transactions to a cryptocurrency's blockchain.
What is the proof-of-work answer? ›
Proof of work is also called mining, in reference to receiving a reward for work done. Proof of work allows for secure peer-to-peer transaction processing without needing a trusted third party. Proof of work at scale requires vast amounts of energy, which only increases as more miners join the network.
What is the best explanation of proof-of-work? ›
Proof of work is a consensus mechanism to choose which of these network participants—called miners—are allowed to handle the lucrative task of verifying new data. It's lucrative because the miners are rewarded with new crypto when they accurately validate the new data and don't cheat the system.
What is the pirate chain proof-of-work? ›
In addition, Pirate Chain uses the delayed Proof of Work (dPoW) mechanism from Komodo, which adds an extra layer of security. This mechanism notarizes the blocks of Pirate Chain onto both Komodo and Bitcoin blockchains, making it exceedingly difficult for malicious actors to launch a successful attack on the network.
How exactly does proof of stake work? ›
In proof of stake, the validators' staked crypto funds serve as an economic incentive to act in the network's best interests. In the case that a validator accepts a bad block, a portion of their staked funds will be “slashed” as a penalty. The amount that a validator can be slashed depends on the network.
What counts as proof of work? ›
Types of proof of employment
Official pay stubs. Bank statements. Tax returns from the previous two years.
What is proof of work with example? ›
Proof-of-work example
Let's use Bitcoin as an example. Say you have 1 Bitcoin in your crypto wallet. What does that actually mean? It means that users worldwide have copies of the historical record of transactions using Bitcoin, and those records are all in agreement about the balance in your account.
Why is proof of work safe? ›
Proof-of-work makes it impossible to counterfeit bitcoin unless a nefarious miner controls more than 50% of the entire network — this means they must control at least 51% of both the cumulative computing power of miners, known as the hashrate, and the nodes in the network.
Is Bitcoin proof of work? ›
The proof-of-work algorithm used by Bitcoin aims to add a new block every 10 minutes. To do that, it adjusts the difficulty of mining Bitcoin depending on how quickly miners are adding blocks. If mining is happening too quickly, the hash computations get harder.
How do you solve proof of work? ›
Proof of Work and Mining
- New transactions are grouped together. Users buy and sell cryptocurrency, and the data from these transactions are pooled into a block.
- Miners compete to process the new block. Crypto miners compete to be the first to solve a complex math problem. ...
- One miner is chosen to add the new block.
Pirate code stated that goods taken from another ship during a raid were to be fairly distributed among the crew. The ambition of piracy was to become rich, and pirates accumulated wealth through cash and goods plundered from other ships.
What is longest chain proof of stake? ›
The longest chain protocol means that the honest nodes always propose on the tip of the current public longest chain C(t) (at rate λh, proportional to their stake). The adversary can propose on any block (at rate λa, again proportional to its stake).
How much is the pirate chain today? ›
The live Pirate Chain price today is $0.23 USD with a 24-hour trading volume of $59.38 USD. The table above accurately updates our ARRR price in real time. The price of ARRR is down -0.06% since last hour, down -4.05% since yesterday.
Will Bitcoin switch to proof-of-stake? ›
Bitcoin's code is immutable and has demonstrated its resilience to attempts to change its underlying mechanisms. While Ethereum, a prominent cryptocurrency, successfully underwent a transition from Proof-of-Work to Proof-of-Stake in 2022, it is unlikely that Bitcoin will follow suit.
Is dogecoin proof-of-work? ›
The top Proof of Work blockchains, known for their robust security and decentralization, include Bitcoin, Dogecoin, Litecoin, Bitcoin Cash, Ethereum Classic, Kaspa, Monero, Bitcoin SV, Conflux Network, and Siacoin.
What is the disadvantage of proof-of-stake? ›
What Are the Disadvantages of Proof-of-Stake? Under Proof of Stake (POS) consensus, users must generally own a cryptocurrency before they can participate in consensus and earn more crypto. To host a full validator node on Ethereum, a user needs to stake 32 ETH, which is very expensive.
What is proof of work in the US? ›
To prove employment authorization, USCIS will accept:
a Social Security card. a U.S. birth or birth abroad certificate. a Native American tribal document. a U.S. citizen ID card.
What is a general proof of work? ›
Proof of work (PoW) is a form of cryptographic proof in which one party (the prover) proves to others (the verifiers) that a certain amount of a specific computational effort has been expended. Verifiers can subsequently confirm this expenditure with minimal effort on their part.
What is proof of work experience? ›
A work experience certificate is an official document provided by an employer for verifying the time a current or former employer spends with the company. It confirms their designation and years of experience in a job role.
