What is Proof-of-Work (PoW)?
The proof-of-work (PoW) consensus mechanism has become one of the most talked-about concepts in the crypto space. The reason for this is not far-fetched — it has been identified to be inherently flawed.
What is Proof-of-Work (PoW)
Basically, PoW describes an insignificant yet feasible amount of effort that is put in to deter frivolous or malicious use of computing power. Albeit being in existence for a long time, the idea to use this mechanism to safeguard various networks was first suggested by Hatt Finney in 2004.
Following the launch of Bitcoin in 2009, the pseudonym developer, Satoshi Nakamoto, adopted this concept. Currently, the mechanism forms the basis on which a ton of other projects are built.
Primary Function of Proof-of-Work
In basic terms, PoW solves the “double spending” problem, which if left unattended, could be a great sticking point for the crypto market. To get a better idea of proof-of-work and how it functions on various crypto networks, we will use an example.
The traditional financial system is run by a central authority or administrator who's charged with the responsibility of ensuring that all transactions executed are genuine and in line with the country’s pre-stipulated rules and guidelines. This is completely different from how blockchain-powered crypto projects like Bitcoin work.
As a permanent distributed ledger, there is no central authority or administrator tasked with the responsibility of ensuring that all digital assets transferred are indeed owned by the sender. This gives way to double spending which has been identified to have a plethora of negative impacts on networks, some of which are; debasing or devaluing coins, inflating the overall coin supply, and making the currency utterly worthless.
To prevent these from happening, the proof-of-work consensus comes in. PoW eliminates double spending on these blockchain networks by ensuring that there's significant “proof” computation was carried out.
Proof-of-work and Mining
Additionally, proof-of-work is part of the transaction verification process on various networks like Bitcoin. When transactions are processed on, let's say, the Bitcoin network, blocks (transactions) are added to the chain, hence the name blockchain. Each of these blocks contains the most recent transaction information.
Once a new block is discovered by a miner, proof-of-work broadcasts this to all of the other miners, thus, ensuring there's consensus before the new block is added to the chain. Ideally, once a new block has been discovered and broadcasted on the network, the other miners immediately leave what they are doing and verify the new block to ensure that it meets all of the network's guidelines before eventually adding it to the chain.
Proof-of-work as a consensus mechanism ensures that there is consensus on the network.
Unfortunately, this mechanism has been criticized lately for its inability to scale efficiently, owing to its inherently flawed system. The congested nature of the Bitcoin and Ethereum networks has been ascribed to the inefficient nature of this mechanism.
Finally, proof-of-work albeit inefficient is a secure mechanism. It is almost impossible to launch an attack on a PoW powered network.