What Is Proof of Work?

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DEFINITION
Proof of work, or PoW, is a method of verifying and tracking the creation of new cryptocurrency and transactions that occur on a cryptocurrency blockchain. Cryptocurrencies, including Bitcoin and Ethereum, rely on proof of work algorithms to maintain their respective crypto networks.

Proof of work, or PoW, is a method of verifying and tracking the creation of new cryptocurrency and transactions that occur on a cryptocurrency blockchain. Cryptocurrencies, including Bitcoin and Ethereum, rely on proof of work algorithms to maintain their respective crypto networks.

To help you better understand proof of work, let’s delve into what PoW is and how it enables Bitcoin and other currencies to securely operate an open and trusted network. Keep reading to learn more about proof of work.

Definition and Example of Proof of Work

Proof of work is what cryptocurrency miners must show, and show the fastest, to win the right to mine a block of crypto. The “work” is solving highly complex math problems, and the “proof” is the solution to the problem.

Computers around the world specialized for quickly solving these complex math problems compete against each other to solve the puzzle, earning the right to verify the next block of crypto transactions. The winning miner that verifies the block and earns a reward, paid in cryptocurrency.

Crypto miners require support from vast networks of computers to quickly provide proof of work.

With the need to rapidly complete computational work, crypto miners use computing equipment that is designed to quickly verify crypto transactions and maintain a record of past transactions for the blockchain network. The use of cryptographic technology allows anyone to send and receive digital assets securely.

The two largest cryptocurrencies, Bitcoin and Ethereum, use proof of work. (Ethereum is gradually transitioning to using only the consensus protocol known as proof of stake.)  While the proof of work method isn’t the only way to operate a cryptocurrency network, it’s currently the most widely used cryptocurrency algorithm.

How Does the Proof of Work Protocol Work?

Step by step, here’s how the proof of work method works:

  • Transactions are pooled: Cryptocurrency users initiate transactions, which are pooled into a block.
  • Miners compete: Crypto miners compete on the basis of computational power to be the first to solve a complex math problem. Showing proof of this computational work earns the miner the right to process the block of transactions.
  • New block is processed: The winning miner processes the block of transactions, plus mints more of the cryptocurrency, and adds a new block to the cryptocurrency’s blockchain.
  • Blockchain is updated: The new block is then distributed to all other miners, who each maintain a copy of the blockchain for the cryptocurrency network. 

Bitcoin and Ethereum’s proof-of-work systems run using open source software. Anyone with the proper hardware and computer skills can participate in proof of work cryptocurrency mining.

Pros and Cons of Proof of Work

Pros
  • Widely used by most popular cryptocurrencies

  • Extremely secure

  • Rewards cryptocurrency miners enabling new transactions

Cons
  • High electricity use

  • May require expensive hardware

  • Difficult for individual miners 

Pros Explained

  • Widely used by most popular cryptocurrencies: The proof of work protocol is used by the best-known and largest digital currencies, notably Bitcoin and Ethereum.
  • Extremely secure: The extensive computing resources required by the proof of work protocol make a cryptocurrency network secure because manipulating a cryptocurrency’s blockchain requires control over more than half of the crypto network’s computing resources.
  • Rewards cryptocurrency miners enabling new transactions: Miners can earn a profit from successfully validating new blocks of crypto transactions.

Cons Explained

  • High electricity use: Proof of work requires a large amount of electricity to support mining activities.
  • May require expensive hardware: To succeed and earn a profit, purchasing expensive, specialized hardware may be required.
  • Difficult for individual miners: Due to computing capacity requirements, large crypto mining companies and mining pools are more likely to succeed at crypto mining and earn mining profits than individuals working alone.

Cryptocurrencies Using Proof of Work

Here’s a list of popular cryptocurrency platforms using proof of work. This is not a complete list, as hundreds of coins use proof-of-work blockchains. Here are some of the most popular:

  • Bitcoin
  • Ethereum
  • Dogecoin
  • Litecoin
  • Monero

Proof of Work vs. Proof of Stake

You may have heard of proof of stake, which is the consensus protocol that partially governs the Ethereum network. Here’s a comparison of proof of work vs. proof of stake:

   Proof of Work Proof of Stake 
Validation method Miners compete to verify blocks using computing power. Those with the most computer power have the highest odds of earning a block verification fee. A computer algorithm chooses validators to verify blocks. Those with larger cryptocurrency holdings (stakes) have higher odds of being chosen, and earning the block verification fee.
Energy use Uses a tremendous amount of electricity. Uses a relatively low amount of electricity.
Accessibility Anyone can use computing power to follow the proof of work protocol for crypto mining, even with no cryptocurrency balance. A cryptocurrency balance is required to participate. Those with more resources have higher chances of earning rewards.
Cryptocurrencies Used by Bitcoin, Ethereum, Dogecoin, Litecoin, Monero, and others. Used by Ethereum 2.0, Cardano, Solana, Algorand, Tezos, Celo, and others.

Key Takeaways

  • Proof of work is a method that uses computing power to achieve distributed consensus.
  • Proof of work cryptocurrencies rely on large networks of computers operated by crypto miners, who are responsible for verifying and tracking transactions and minting new currency.
  • Proof of work transactions are maintained on a public distributed ledger called a blockchain, which is nearly impossible to hack or edit.
  • Anyone with a compatible computer, a fast internet connection, and the right computer skills, can use the proof of work protocol as a crypto miner.

Article Sources

  1. Ethereum.org. "Proof-of-work (PoW)." Accessed Dec. 6, 2021.

  2. Ethereum.org. "Proof-of-work (PoW)." Accessed Dec. 6, 2021.

  3. Bitcoin.org "Bitcoin: A Peer-to-Peer Electronic Cash System." Accessed Dec. 6, 2021.

  4. Vincent Mignon. "Blockchains- Perspectives and Challenges," Page 12. Blockchains, Smart Contracts, Decentralised Autonomous Organisations and the Law. Edward Elgar Publishing, 2019. Accessed Dec. 6, 2021.

  5. CoinMarketCap. "Top PoW Tokens by Market Capitalization." Accessed Dec. 6, 2021.

  6. Ethereum.org. "Proof-of-Stake (POS)." Accessed Dec. 6, 2021.

  7. CoinMarketCap. "Top PoS Tokens by Market Capitalization." Accessed Dec. 6, 2021.

  8. CoinMarketCap. "Top PoW Tokens by Market Capitalization." Accessed Dec. 6, 2021.