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Proof of Work algorithm is a smart solution to prevent double spending and hacker attacks. Proof of work plays an important role in blockchain and most cryptocurrencies use it as their platform’s consensus algorithm.
The proof-of-work consensus algorithm has played an important role in the history of the world of cryptocurrencies as the first method for validating transactions on the blockchain platform. As you know, an important part of the initial vision of the world of cryptocurrencies was decentralization, and to make it happen, a method for confirming transactions without the involvement of financial institutions had to be created. The first solution to solve this challenge was to use pow’s proof of work algorithm.
Proof of work was created to prevent double spending in the blockchain network. Most major cryptocurrencies such as Bitcoin, Dogecoin, Litecoin, Shiba Inu, Bitcoin Cash, ZCash, Monero, etc. are based on the Proof of Work (PoW) consensus algorithm.
Also, the current algorithm of Ethereum for consensus is also the proof of work of pow; Of course, Ethereum blockchain is transitioning from Proof of Work to Proof of Stake or POS algorithm in Ethereum 2.0 update. The Proof of Work algorithm is actually a method to secure the ledger of a cryptocurrency, which I will discuss more in the rest of this article.
The concept of consensus algorithm
Consensus mechanism means a kind of risk-resistant mechanism. In blockchains and computer systems, a consensus mechanism is used on a data value in order to reach the necessary agreement. Digital currencies will not be able to continue operating without the network consensus algorithm and will stop. This algorithm is actually a set of decision-making rules about the legitimacy of network users to register and confirm transactions.
What is Proof of Work Algorithm?
Before discussing how the Proof of Work (PoW) consensus algorithm works in the blockchain, I am going to first discuss the concept of proof of work. The Proof of Work algorithm was first introduced in 2008 by Satoshi Nakamoto in the Bitcoin White Paper. Bitcoin and most digital currencies have used this proof of work in their blockchain.
Proof of work is introduced as one of the algorithms or consensus mechanisms in blockchain, which is used to confirm transactions, maintain blockchain security, and generate blocks. This algorithm is actually a mechanism used by computers and blockchain network systems to confirm the value of a part of the data. In proof of work, miners receive a reward for doing network processing work.
Read more: How can blockchain security be increased?
In a statement, it can be said that this technology has existed for years and Nakamoto used it for the first time in order to create a peer-to-peer (P2P) payment system. POW proof of work allows the decentralized network to reach consensus, which prevents users from spending coins twice. Another application is the proof-of-work consensus algorithm in maintaining cryptocurrency reports. To better understand the concept of proof-of-work consensus algorithm, consider Bitcoin mining;
In this mining, complex computer processes are performed by miners, which is a kind of dice throwing or lottery, which is called proof of work or PoW. Energy consumption by blockchain in this activity helps maintain the health of the nodes used in the network.
Read more: Is blockchain energy consumption high?
POS algorithm or POS proof of stake is another consensus algorithm that was created to replace proof of work in the blockchain. For example, Ethereum’s current algorithm for consensus is based on proof-of-work pow;
But the blockchain of this currency is transitioning from proof of work to proof of stake algorithm in Ethereum 2.0 update.
How the proof-of-work consensus algorithm works
In the proof-of-work algorithm or PoW, miners in mining, which is a kind of lottery using a multi-million-sided virtual dice to produce a specific hash. When miners achieve the desired hash in the pow proof-of-work lottery using this digital method on the computer, they will be allowed to add a block to the cryptocurrency ledger.
The larger the size of the blockchain network, the harder it is to win the pow proof-of-work algorithm lottery. Proof of Work is actually an important part of finding new blocks and adding them to the blockchain network. New blocks are mined by active miners in the proof-of-work algorithm. Finding a block by a miner requires the use of a computer and expensive equipment.
The goal of miners is to create a hash that matches the current purpose of Bitcoin. In fact, miners must create a hash with enough zeros against the hash. The probability of getting multiple zeros in a row is very low, but many miners around the world generate trillions of hashes every second. Mining each new block in a blockchain like Bitcoin takes approximately 10 minutes. Any method that achieves this goal earlier than others will receive a certain amount of BTC as a reward. In the following, miners compete again to find a new block.
Miners in the process of proof of work pow
Miners are people who compete to produce a new block and grant it to the network. The winning miner will be awarded a certain amount of tokens as a reward to motivate him to continue working and be honest in his work. The reward for extracting each block in a blockchain like Bitcoin is equal to 12.5 in addition to the transaction fee, which is halved every 4 years during the Bitcoin halving event.
To participate in the mining process, miners need expensive hardware equipment that can achieve a new block with continuous efforts and high energy consumption.
The importance of Proof of Work algorithm
One of the big challenges of Bitcoin as the first cryptocurrency in the world of cryptocurrencies was how to figure out that someone is not using it for multiple purposes. In order to solve this problem, Satoshi Nakamoto , the creator of Bitcoin, has published an introduction white paper, in which he showed with a specific protocol how to perform cryptocurrency exchanges without the intervention of a third party and at the same time maintain the security of the network.
This issue, that is, spending dollars, made Nakamoto look for Proof of Work. Cryptocurrency as an information data faced the problem of how to design it in such a way that it is not possible to create and use its copy. This problem was solved by Nakamoto by the proof-of-work algorithm, which was a kind of lottery using a multi-million-sided virtual dice.
Based on the proof-of-work algorithm, the double use of a digital currency was solved by encouraging miners to validate their exchanges before registering the currency in the blockchain. On the other hand, the proof-of-work algorithm created a kind of competitive environment among the developers of the crypto market, in which each person is trying to act in the best way and because they do not abuse it, based on the received protocol and keep the blockchain at a safe and appropriate level. put
It should be noted that the proof-of-work algorithm in the blockchain can prevent any disruption in the Bitcoin network. These cases have made it possible to consider Proof of Work as one of the most important consensus algorithms, an optimal way to solve the problems faced by cryptocurrencies.
Proof of work algorithm security
Manipulating the data of a block will change the hash value and destroy its validity. Thus, if a person decides to change the data of a block, he must re-extract the hash of all network blocks. Miners in the network are active in a decentralized manner and it is not possible to create two valid blocks at the same time.
The wider the blockchain network and the larger the number of users, the more likely the attack will be 51% lower; Because it is impossible to achieve the necessary hash power. The difficulty of mining in the Bitcoin network is set in such a way that the hash calculation time of each new block takes approximately 10 minutes.
If you have enough hash rate, this work makes it very difficult to manipulate the data by prolonging the time to calculate the new hash value of all network blocks. Bitcoin is the only network that has a 51% probability of being attacked because of the $1.5 million attack cost per hour.
Comparison of pow proof of work algorithm with pos proof of stake algorithm
Maybe you have come across the question after reading the above material related to the proof of work consensus algorithm in the blockchain, what is the Proof of Stake algorithm?
In response, I must say that the POS proof-of-stake algorithm is a new solution to solve the problems of the POW proof-of-work consensus mechanism, which was proposed in 2011 on the Bitcointalk forum. Both models have the possibility to confirm received transactions and add them to a blockchain.
By the pos algorithm, the members of a network are called validator instead of the term miner. One of the differences between the proof of work algorithm and the POS algorithm is that validators lock certain amounts of their digital currency in a smart contract on the blockchain network.
Proof-of-stake mechanism as a validator eliminates the need for expensive equipment and high power consumption by facilitating people’s participation in blockchain systems. In fact, in this mechanism, the number of manners coins is an influential factor in choosing them as the chosen miner.
The first person to win the lottery in the proof-of-work algorithm will receive a reward. But in the POS algorithm, all the crypto currency units are already extracted and their number does not change. In fact, the competition between miners in Proof of Work is not seen in this mechanism, and miners definitely receive a share in exchange for assets invested in the network.
Another major difference between Proof of Work and Stake is the payment of rewards and how the network governs to confirm transactions.
Advantages of Proof of Work Consensus Algorithm
The Proof of Work algorithm has many advantages that have led most digital currencies to use it. Next, I will discuss the benefits of the Proof of Work (PoW) algorithm:
Prevent hacker attacks and double spending
As mentioned above, the proof-of-work algorithm is a smart way to avoid double spending and hacker attacks. In this method, miners provide inputs to the device and these inputs are converted into suitable outputs called hash codes by the device based on its processing power. The hash codes of each block are unique and no transaction is similar to another transaction, and therefore hacking digital currencies based on the consensus algorithm of proof of work is a difficult method.
The possibility of extracting cryptocurrencies
Digital currencies that are based on proof of stability of work can be mined by users by miners and hardware. In fact, proof-of-work currencies can be mined and people can mine them with a miner.
Disadvantages of the pow proof-of-work algorithm
In addition to the advantages of having a proof-of-work consensus mechanism in blockchain, this mechanism also has disadvantages:
High power consumption
In order to mine Bitcoin, miners have to keep their devices on 24 hours a day, 7 days a week, which leads to high electricity consumption. Also, due to the increase in the number of extractors, more powerful devices with more electricity consumption are needed for this.
51% attacks
If an organization or company with individuals can get 51% of the computing power of the network, the consensus mechanism to ensure security will no longer work and that company or person will be able to add an invalid block to the network and jeopardize its security. .
Centralization of mining
Proof of work means the creation of a cryptocurrency without the involvement of an organization or a centralized authority in it. Therefore, this system is centralized in practice, and the control and management of the computing power of Bitcoin is only provided by three mining pools, about 50%, and only this factor seeks to solve this problem.
Digital currencies based on Proof of Work
With the launch and creation of Bitcoin in 2008, the Proof-of-Work algorithm was shown to be a suitable and secure consensus mechanism for other cryptocurrencies. Today, important currencies operate based on this algorithm, including Bitcoin, Ethereum, Litecoin, Dogecoin, Shiba Ino, Bitcoin Cash, Monero, Deckord, Dash, ZCash, etc.
Of course, it should be noted that although Ethereum’s current algorithm for consensus is proof-of-work, it will move from this algorithm to proof-of-stake in the Ethereum 2.0 update.
Due to the decentralized nature of blockchains, these peer-to-peer networks require a method to achieve security and consensus. Proof-of-work algorithm is one of the suitable methods to achieve this goal.
All cryptocurrencies based on proof of work will be able to be mined.
