Proof of Work is a familiar term in the literature of crypto. It is a mechanism for verifying transactions without relying on intermediaries. This consensus algorithm has its own advantages and disadvantages, but it’s undeniable that it had a significant role in Bitcoin’s dreams coming true. In this article, we are going through Proof of Work, covering some of its advantages and disadvantages, and introducing some of the most famous blockchains using this popular consensus algorithm. Stay with us.
What is Proof of Work (PoW)?
Proof of Work, as we mentioned earlier, is a mechanism for verifying and validating transactions without needing to rely on third parties in decentralized networks. We have to mention that Proof of Work is another name for mining. In this method, volunteers dedicate the computing power of their devices called “miners” to a cryptocurrency like Bitcoin and earn rewards instead.
By the way, this definition may still seem vague. That’s because, for understanding Proof of Work, you should first understand consensus in blockchains. And the best way to understand consensus is through examples. Imagine a centralized system like a bank. In such a system, the bank uses centralized services and servers that has run itself and which it trusts, and verifies your transactions. It’s obvious that in such a system, no consensus algorithm is needed.
But what about cryptocurrencies that are not based on centralized servers? The most important issue in these systems is “security”. How is the security of transactions in a network like Bitcoin guaranteed? How can we assure that no one can steal the bitcoins of other users? What if a malicious actor decides to attack the network? The answer to all these questions is “consensus algorithm”.
A consensus algorithm is a set of rules and conditions through which users can make sure of the network’s well-being and accuracy.
For example, Bitcoin’s consensus algorithm is Proof of Work. Proof of Work is based on the assumption that for proving their goodwill, participants should pay a specific amount of money and do a certain amount of work. This work does NOT have any practical function, other than proving the goodwill and securing the network.
Pay attention that in the Bitcoin network, the participants themselves don’t do the work. Instead, they buy miners and dedicate them to the network. Miner is an ASIC device with a high degree of computing power. This device consumes a certain amount of electricity and solves the math problems that Bitcoin poses. However, in return for this, miners receive the newly-minted bitcoins as a reward. This is a good incentive for becoming a Bitcoin “full node” (another name for miner) and participating in the process of securing the network. If an attacker decides to aim at a network like Bitcoin, he/she must first acquire a hash power greater than 51% of the network’s full nodes. Doing so is so costly that we can say it’s practically impossible and completely illogical.
Proof of Work has several advantages. As we explained, it is so secure, and attacking it is almost impossible. Another reason for its popularity is that it was used by Bitcoin, the world’s number one cryptocurrency. But this popular consensus algorithm also suffers from two big disadvantages: “low scalability” and “high energy consumption”. Stay with us in the next section to find out more about these two challenges.
Challenges of the Proof of Work consensus algorithm
What do we mean by low scalability? As cryptocurrencies evolved and new types of them were developed, the number of transactions they could process per second became more important. Of course, that seems normal, because if cryptocurrencies want to achieve public adoption, they must be able to record a large number of transactions per time. This is the first big challenge Proof of Work is facing now. Proof of Work is slow. A network like Bitcoin can only process 7 transactions per second. Compare that to centralized networks like Visa that record thousands of transactions per second. In other words, we can say that Bitcoin owes its high security to victimizing its speed.
The other critical challenge of Proof of Work is that it’s not eco-friendly. As we mentioned earlier, this consensus algorithm consumes a high amount of electricity and this has arisen a lot of criticism. Statistics show that only one Bitcoin transaction requires 1,544 kWh to complete and that Bitcoin uses more energy than many countries in the world. It was in response to these two challenges that Proof of Work’s main rival, Proof of Stake, was developed.
Cryptocurrencies using Proof of Work
In this part and as the final point, we would like to refer to a number of cryptocurrencies that use the Proof of Work consensus algorithm. As we repeatedly mentioned throughout the article, Bitcoin is the most famous cryptocurrency based on Proof of Work, but it’s not the only one. Some famous cryptocurrencies using Proof of Work include:
platform cryptocurrency Hash function Block time Required hardware Block reward (at the time of writing)
Bitcoin BTC SHA-256 10 minutes ASIC 6.25 BTC
Ethereum ETH Ethash 14 seconds GPU 2 ETH
Ethereum Classic ETC Ethash 14 seconds GPU 3.1 ETC
Bitcoin Cash BCH SHA-256 10 minutes ASIC 6.25 BCH
Bitcoin SV BSV SHA-256 10 minutes ASIC 6.25 BSV
Litecoin LTC Scrypt 2.5 minutes ASIC 12.5 LTC
Monero XMR CryptoNight 120 seconds CPU and GPU 2.47 XMR
Dash Dash X11 2.5 minutes GPU and ASIC 2.88 DASH
Raven Coin RVN X16R 1 minute GPU 5,000 RVN
ZCash ZEC Equihash 2.5 minutes GPU 3.125 ZEC
In this article, we tried to go through the consensus algorithm used by the world’s first cryptocurrency, and arguably the most famous consensus algorithm. We explained how Proof of Work operates, what advantages and disadvantages it has, and what cryptocurrencies are based on it. You have definitely figured out that despite all the advantages, Proof of Work is not flawless. What other consensus algorithms do you know? Do you find them more promising than Proof of Work? Do you think cryptocurrencies based on other more scalable consensus algorithms will one day surpass Bitcoin in terms of popularity? Feel free to share your opinions with us.For more information and the latest updates on cryptocurrencies, including Proof of Work and other consensus algorithms, as well as details about crypto exchanges in Dubai, visit Cryptodesk now.