What Is proof-of-work (PoW)?

There has to be some consensus mechanism in a distributed system so that the ‘truth’ can be established. This is an issue with decentralised cryptocurrencies, where there’s no central entity to determine this ’truth’. This is why many cryptocurrencies rely on the proof-of-work (PoW) consensus mechanism.

Simply explained, proof of work allows individuals to add blocks to the blockchain. To maintain network security, new blocks are validated by network members solving mathematical puzzles. These puzzles are difficult enough to prevent malicious behavior, such as a miner attempting to validate a fraudulent transaction. Validating blocks uses a lot of computer power. Members earn rewards for completing the puzzle.  

Proof-of-work predates bitcoin (BTC), the first cryptocurrency. Cynthia Dwork and Moni Naor invented PoW in 1993 as a way to prevent both DDoS attacks and spam emails. Hal Finney created the first PoW system in 2004, before bitcoin (BTC) had been invented. Known as an early bitcoin contributor, Finney was the first person ever to receive bitcoin, accepting one directly from the coin’s inventor, Satoshi Nakomoto.

Blockchain technology uses a decentralised ledger where blocks, or transactions, are validated. The proof-of-work consensus mechanism allows these blocks to be validated. Miners solve problems (the ‘work’') in order to confirm blockchain transactions. Once the block is confirmed, the miner is rewarded with cryptocurrency.

Miners have to operate computer hardware and run network nodes in order to solve these problems, which takes a considerable amount of energy. This is one reason why many experts are critical of PoW, arguing that it’s not energy-efficient and can significantly harm the environment. The proof-of-stake model has been discussed as a more energy-efficient alternative.

Bitcoin (BTC), the most well-known cryptocurrency, relies on a proof-of-work consensus mechanism - it’s the most prominent and high-profile proof-of-work example. Other major cryptocurrencies, like dogecoin (DOGE), bitcoin cash (BCH), Litecoin (LTC) and Monero (XMR), also rely on the proof-of-work model.

Proof-of-work meaning

With proof-of-work, miners race to solve computational problems to validate the “blocks” in a blockchain, for which they are rewarded. The proof-of-work consensus mechanism is popular and battle-tested thanks to the many different cryptocurrencies that rely on it. It also helps to secure the blockchain because nodes are competing to find a solution. 

To validate malicious or fraudulent blocks, it would take over 51% of the network’s computational power. Since the proof-of-work model incentivises miners, it is much more difficult for this kind of attack to occur.