What is Proof of Work (PoW) in Blockchain – 2023 Guide

Newbie blockchain users often ask this question: What is "proof of work" in blockchain and why is it so good? Let's explain it briefly.

Proof of Work, or PoW, is the algorithm used to achieve consensus in the blockchain. They use it to verify transactions and create new blocks. In fact, it is a one-click method that allows miners to compete against each other for transactions and rewards. Users of the network send digital tokens to each other, then all transactions are combined into blocks and recorded in a dedicated ledger (blockchain).

Nevertheless, care should be taken when verifying operations and managing blocks. Networking is based on the possibility of solving complex mathematical tasks and easily proving the solutions obtained.

What is this "mathematical function"?

This is one of those problems that require significant computing power. There are many such problems:

• Attempts to find hash functions or inputs by knowing the output data;
• to factor a number into a factor;
• "Jigsaw excursion": When the server suspects a DoS attack, it requires the client to compute a hash function, sometimes in a specific order, and then compute the meaning of the string of problem hash functions. . .

In the case of PoW, they use hashing. As the network grows, the problems become more complex. Hash algorithms require a lot of computing power, so the complexity of a task is a relevant concern.

How does it work?

The speed and accuracy of the blockchain depends on it. But the task should not be too complicated. Otherwise, block creation will take time and many incomplete transactions will be left in the network. If it is not possible to solve the task in the expected time, the creation of the block will be just a happy accident. If the problem is solved too easily, the system becomes vulnerable to fraud, spam, and DDoS attacks.

The solution should be easy to test. Otherwise, all nodes will not be able to verify the correctness of the calculation. This means they have to trust other nodes, and it violates one of the most important principles of blockchain – transparency.

How do they use it in blockchain?

Miners solve the task, create a new block and confirm the transaction. The difficulty of a task depends on the number of users, current network load, and performance capabilities. In addition, the hash of each block contains the hash of the previous one to increase the level of security and make it impossible to break the sequence of blocks created.

If the miner successfully solves the task, a new block is created. There they keep another set of transactions, all of which are considered verified.

Where do they use proof of work?

They use it in many cryptocurrencies. Of course, the most famous, popular, and "strongest" of them is Bitcoin. It was Bitcoin that started the trend.

The Hashcash algorithm is used here. This allows the complexity of the task to be changed according to the overall performance of the network. The average block generation time is 10 minutes. A similar system is found in other cryptocurrencies, most likely Bitcoins (e.g. Litecoin). Ethereum is the second major project where PoW is used. Considering the fact that about 75% of blockchain projects use this platform, it can be said with certainty that the consensus model with proof of work is the main algorithm of their work.

Why PoW?

Its main advantages are protection against DDoS attacks and less impact of miner-owned cryptocurrency on mining prospects. PoW imposes some limitations on the actions that participants can take because the task is difficult to solve.

An effective attack will also require high-performance hardware and an investment of time. This means it is possible but not profitable due to the high cost. It doesn't matter how much money you have in your wallet. What matters is that you have great computing power to solve tasks and create new ones.

Therefore, large investors cannot make decisions for the network.

What is missing from this algorithm?

Its main problems are:

• heavy expenses;
• "redundant" computing;
• "51% Attack"

Complex calculations require specialized and expensive equipment. Without controlling them, costs increase and mining becomes possible only for large groups of miners.

In addition, specialized computers consume a lot of energy, which further increases costs. This results in the gradual centralization of the system, as this method is the most cost-effective. And that is exactly what is happening with Bitcoin.

Miners use large amounts of electricity to create blocks to complete tasks, but the calculations they make are essentially useless. Of course, network security is guaranteed, but the results cannot be used in science or business.

What is a 51% attack?

A 51% attack, or majority attack, is possible when one user or group of users controls a large portion of the network's capabilities. This gives them the ability to control events within the network. By doing this, they can monopolize the creation of new blocks and reap all the rewards, as they have the power to prevent other miners from completing new blocks. In addition, the majority may cancel the transaction.

Suppose Mary sends money to her friend Andy via blockchain. Mary takes part in 51% of the attacks, unlike Andy. Their transactions are blocked, but the attackers won't let go. What is happening is that the blockchain is splitting.

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

The network accepts long strings while ignoring short ones. This means that there was never a contract between Mary and Andy and Andy never received the money. This way criminals can cancel the transaction.

Still, a 51% attack will definitely pay off. It requires a lot of computing power. Also, soon after it is exposed, the network gets compromised and users start leaving it. In turn, this process permanently devalues the cryptocurrency.

This is why the Proof of Work algorithm is considered highly reliable.

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