Proof of Work (PoW) is a prevailing today algorithm of reaching consensus that is applied in the blockchain functioning of such cryptocurrencies like Bitcoin, Litecoin, Ethereum, Monero. Its primary task is to check the transactions within a network and prevent maleficent intervention into its structure.

Proof of Work: why the algorithm used in simple terms

Proof-of-Work is an algorithm functioning to make the decentralized network protected from that or another abuse. A reliable and uninterrupted work of the algorithm is implemented based on:

• constant work of computing power of miners, which performs numerous mathematical tasks;
• a simple mechanism approving the results of computing work.

PoW is an algorithm that is effectively executed only with the help of the most powerful up-to-date computer facilities. And its tasks always have specific and predictable implementation time-frames.

History of Proof-of-Work algorithm creation 

Many will find this paradoxical opening surprising, but the basis for the PoW algorithm had been laid long before it was established and applied in blockchain in the 21st century:

1. In 1993, Cynthia Dwork and Moni Naor described the concept in which access to the resource was ensured by the computation of some function.
2. In 1997, Adam Back, who developed the idea of spam protection via hashing partial inversion in e-mails, launched the Hashcash project.
3. In 1999, the term Proof of Work itself appeared for the first time:  Markus Jakobsson and Ari Juels described it in a scientific article.

Legendary Satoshi Nakamoto was the first one to launch and put into practice the PoW mechanism within the blockchain. Proof of Work has become the tool that allows reaching consensus – the common opinion of all system members about what version of the blockchain to consider the right one.

During its development, the anonymous Bitcoin creator used the groundwork of the old project Hashcash but improved it using a mechanism of changing difficulty. In the Bitcoin ecosystem, the complexity depends on the indicator of the total capacity of all blockchain network participants.

In simple words, Proof of Work creates a mechanism, which makes it possible for some nodes of the network to check the nodes that add new blocks into blockchain during mining. The goal of this action is to find out whether the actual calculation was fulfilled or there is space for machination. The process requires verification of the hash of the block title.

Proof of Work: how difficult it is to process data by the algorithm

When working with PoW, one should necessarily know and understand the following:

• computational operations executed by mining equipment based on Proof of Work algorithm can be performed in an interactive online mode only;
• the complexity of mathematical calculations is dependent on the number of nodes in the system and always remains at such a level to be significant but not ‘unbearable’;
• despite the high difficulty of computations, the verification of results always remains simple;
• nodes always have an opportunity to record precisely how correct the value found by a miner is, but the process of finding a new block is random and is given to a random participant of the network as well.

In each found block, there will always be a hash of its predecessor. That describes exactly how the chain is formed, which gave the name to the blockchain technology afterward. The high difficulty of the process of building an integral chain protects the whole system from unauthorized editing or such negative consequences as ‘double-spending’.

Proof of Work — the basis of the mining industry 

Thanks to this algorithm, the whole industry for cryptocurrency mining has emerged. The node remuneration scheme implemented in blockchain led to the development of specialized equipment that is several times more powerful than the capabilities of an average PC.

In 2012, the total power of all devices within the Bitcoin network outperformed the most powerful supercomputer on the planet. That was precisely the moment when the Proof of Stake algorithm, a competitor and alternative that new and new altcoins tend to, appeared.

Proof of Work vs Proof of Stake: what’s the difference?

The creation of an alternative mechanism of reaching consensus was logical literally from the appearance of PoW itself. Considering the key parameters of the initial model of blockchain protection, it is no wonder that the PoS algorithm turned out to be virtually its complete opposite:

• the cryptocurrency share in the node wallet serves as a key resource to define a participant entitled to mine a new block;
• there is no dependence on hardware capacity;
• low difficulty and high speed of operation processing;
• there is no increased electricity consumption;
• there is a need to be online;
• tokens, which are available in the account and allow to be a provider and be engaged in passive PoS mining, serve as collateral that can be lost if machinations are revealed;
• the more tokens a node has, the more chances to receive the new ones he has.

PoW or PoS: what’s better?

Disputes about what algorithm is the future – among the most favorite topics for blockchain enthusiasts. Considering the difficulty, slowness, and power consumption of PoW, the PoS algorithm is perceived as an obvious path of evolution due to these factors particularly:

1. The algorithm makes attacks on the network expensive and impractical.
2. Even if the attack is successful, the potential perpetrator himself loses the money.

At the same time, Proof-of-Work creates way less motivation for accumulating tokens in the hands of a single person or a group of individuals.