What is a Proof-of-Work Chain?

Since the launch of the first widely-used blockchain protocol in 2009, many cryptocurrencies have successfully processed billions of transactions without relying on centralized third-party coordination.

Since the launch of the first widely-used blockchain protocol in 2009, many cryptocurrencies have successfully processed billions of transactions without relying on centralized third-party coordination.

Decentralized networks, including well-known examples like Zcash, Ethereum, and Bitcoin rely on rules & mechanisms designed to ensure that every participant or “node” in the network recognizes the same ledger.

While cryptocurrencies can use any governing set of rules, Proof-of-work (PoW) is currently the dominant method for coordinating payments or other processes and securing the integrity of common blockchain networks.

What exactly is Proof-of-Work?

PoW is a consensus mechanism that employs a mathematical, cryptographic puzzle to validate each transaction in a blockchain. Due to their nature as systems relying on computers to solve these mathematical problems (as explained in more detail below), PoW systems often require the expenditure of lots of processing power  before  additional transactions are accepted into the network’s global ledger.

How do Proof-of-Work blockchains operate?

Please keep in mind that what follows is not meant to be a fullsome or accurate description of how every PoW system works.

At the backbone of some PoW systems are “miners” racing to validate every incoming transaction. Under a common model of PoW, every broadcasted transaction in a blockchain first enters a virtual pool with other unconfirmed entries. In this model, miners are free to grab any collection of pending entries to confirm whether each transaction contains a valid signature from the sender along with a sufficient balance.

After confirming a full block of transactions in such a system, miners must then input the entire text of their block along with a randomly generated guess—referred to as “Nonce” for Number Only Used Once—into a cryptographic hash function.

Before any miner can broadcast their proposed transaction block to the network, the output of their hash function must have a minimum of a certain number of leading zeroes. For instance, if a protocol required that the output of the hash function must contain 4 leading zeroes in order for its corresponding block of transactions to be considered eligible for addition to the existing blockchain, then any hash function output with four or less leading zeroes would not satisfy the condition. An example of a satisfactory output in such a system could be “0000073920484030334.” Bitcoin’s SHA-256 (a type of hash function) is capable of producing1.1 *1077 possible outcomes – a number that dwarfs all the grains of sand on Earth. While a single computer could spend thousands of years re-adjusting the Nonce to crack this code, a network of many computers is capable of consistently solving this puzzle on the Bitcoin protocol about every ten minutes.

After hitting the target and the successful minder broadcasts its block, every node in the network must verify that the corresponding transactions align with consensus rules and that the miner correctly solved the cryptographic puzzle. If either condition is not met, the network is free to ignore the proposal. If the network accepts the block, the miner is rewarded by “mining” new coins or simply writing an entry in the public ledger paying themselves according to the protocol rules.

If two miners broadcast proposals at the same time or provide conflicting information, the network is often designed to wait and see onto which prior proposed block the next block is added. In many blockchain protocols, the network only recognizes the longest known chain, and in PoW, the longest chain represents the largest energy expenditure.

How does Proof-of-Work Ensure Coordination and Security?

Many proponents of PoW protocols state that PoW protocols are difficult, costly, and time-consuming by design. These characteristics are designed to make network attacks more costly, thus improving security of the network..

Cryptographic functions used in PoW systems are designed to be challenging to solve and easy to verify. Anyone looking to add entries to PoW blockchains must contend with the time, energy, and resources needed to compete in creating the next block, with no guarantee of producing that block. These features of many PoW systems are designed, to some extent, to reduce the likelihood of attacks on the network by forcing any actor trying to corrupt the blockchain to obtain sufficient resources to outperform all other actors on the network combined, such that the corrupting actor will have a chance to corrupt the blockchain and successfully mine blocks to permanently include such corruption (like a false transaction) in the public ledger

FAQs

Which blockchains use Proof-of-Work?

Proof-of-work is widely held to have been popularized by Satoshi Nakamoto, the pseudonymous identity of the creator of Bitcoin. Since the launch of Bitcoin, many other cryptocurrencies have employed their own version of PoW.

Some PoW protocols operate on the same SHA256 algorithm employed by Bitcoin, but others have embraced their own cryptographic puzzle to alter the details of their protocols, like the time and energy expenditure needed to mine a new transaction block.

What are the alternatives to Proof-of-Work?

As the crypto market continues to experiment and innovate, alternatives to Proof-of-work have emerged as security measures for decentralized networks. Proof of stake – a model first employed in a cryptocurrency by Peercoin to reduce time and energy expenditures – has become a well-known alternative to PoW. Other measures, like proof of space, are similar to Proof-of-work, but require computer storage rather than computation to  secure the network.

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