What Is Proof Of Work? | Cryptocurrency Explained

What Is Proof Of Work? | Cryptocurrency Explained

The algorithm that secures many cryptocurrencies, including Bitcoin and Ethereum, is known as proof-of-work.

Most digital currencies have a centralized entity or leader who keeps track of all users and how much money they have. Cryptocurrencies like Bitcoin, on the other hand, have no such leader. Proof-of-work is required for the online currency to function in the absence of a company or government running the show.

Proof of work, in particular, solves the "double-spending problem," which is more difficult to solve without a leader in charge. If users can double-spend their coins, the overall supply increases, devaluing everyone else's coins and rendering the currency unpredictable and worthless.

Double-spending is a problem with online transactions because digital actions are so easy to replicate, making it trivial to copy and paste a file or send an email to more than one person.

Proof-of-work makes doubling digital money extremely difficult. It is essentially what it sounds like: "proof" that someone has performed a significant amount of computations.

How does it work?

Bitcoin is a blockchain, which is a shared ledger that records every Bitcoin transaction that has ever occurred. As the name implies, this blockchain is made up of blocks. The most recent transactions are stored in each block.

Proof of work is required when adding new blocks to the Bitcoin blockchain. Miners, the players in the ecosystem who carry out proof of work, bring blocks to life. The network accepts a new block every time a miner generates a new winning proof-of-work, which happens roughly every 10 minutes.

Here's an example of Proof of Work.

Proof of Work makes a computer do random hashing until it comes up with an output that has the right number of leading zeroes.

For example, the hash for block # 660000, mined on December 4, 2020 is 00000000000000000008eddcaf078f12c69a439dde30dbb5aac3d9d94e9c18f6.2. 

The block reward for that successful hash was 6.25 BTC.

That block will always contain 745 transactions totaling just over 1,666 bitcoins, as well as the previous block's header. If a transaction amount was changed by even 0.000001 bitcoin, the resulting hash would be unrecognizable, and the network would reject the fraud attempt.

Why is Proof of Work needed?

Proof-of-work is intended to prevent users from printing extra coins that they did not earn or from double-spending. If users could spend their coins more than once, the currency would effectively become worthless.

This is a simple problem to solve in most digital currencies. The bank in charge of the system keeps track of how much money each individual has. If Elizabeth sends John $1, the bank subtracts $1 from Elizabeth and gives John $1.

However, there is no such entity in cryptocurrency. A solution is provided by proof-of-work.

Who invented Proof of Work?

Bitcoin creator Satoshi Nakamoto invented proof-of-work to get Bitcoin off the ground. No one knows who Nakamoto is, or whether the name is an alias.

What are the problems with proof-of-work?

High energy use.

51% attacks

Mining centralization

Which cryptocurrencies use proof-of-work?

Most cryptocurrencies use proof-of-work, though some are experimenting with other ways of securing their networks. The most popular cryptocurrencies tapping proof-of-work include:

Bitcoin
Ethereum
Bitcoin Cash
Litecoin
Monero

And there you have it, "proof-of-work"... in a nutshell.

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What Is Proof Of Work? | Cryptocurrency Explained

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https://youtu.be/krAUis30ab8