What is Proof of Work, a dominant consensus model used by many cryptocurrencies?
Proof of Work is the consensus mechanism for Bitcoin designed by Satoshi Nakamoto. Proof of Work is basically a protocol created to prevent attempts to disrupt the operation of any system and to prevent Spam (spam).
It first appeared in a 1993 paper by two computer experts, Cynthia Dwork and Moni Naor. Afterwards, it appeared in a different way in the Bitcoin technical document published by Satoshi Nakamoto. In the Proof of Work model, miners run hybrid software on their computers to solve complex mathematical equations of their hardware. Also, miners work to spend their valuable computing resources in exchange for a potential reward.
Satoshi Nakamoto has the following statements about Proof of Work:
“Proof of Work has the nice feature that it can be transmitted through untrusted agents.”
Preventing deliberate attacks on the network is a difficult process, but it does mean that more powerful computers have an advantage. Since the early days of the Bitcoin network, there has been a “power race” between miners, who first used the computers’ CPU to mine Bitcoin, then moved on to high-end graphics cards and finally dedicated ASIC mining hardware.
Bitcoin users publish transactions to the blockchain, miners aggregate them into a block and compete for Proof of Work to be the first to solve the equation through a process called hashing. The miner or mining pool whose block is accepted receives Bitcoin as a reward. As it is known, the reward currently continues as 6.25 BTC; It was originally 50 BTC and halves every four years.
Why is Proof of Work Important?
Proof of Work is a critical component of the Bitcoin network. If it weren’t for such an energy-intensive process, it would be easy for bad actors to attack the network and “double spend” Bitcoin. That is, a 51% attack could be made, in which a mining group commands the majority of the network’s total hash rate (computing power), thus allowing it to manipulate blocks and exploit the system.
However, since Bitcoin’s proof-of-work is so resourceful, it’s nearly impossible for any one miner or group to command that much total power.
Cryptocurrencies Using Proof of Work
Proof of Work is the dominant consensus model used in the largest cryptocurrency, Bitcoin, as well as other cryptocurrencies such as Litecoin, Dogecoin, Bitcoin Cash, and Monero.
What Are the Disadvantages of Proof of Work? The biggest disadvantage of Bitcoin’s Proof of Work model is that it uses a lot of energy for mining. In the statements made regarding this situation, it is claimed that the entire Bitcoin network has a carbon footprint comparable to the country of Morocco. Electric car maker Tesla also mentioned the environmental impact of mining when it decided to stop accepting Bitcoin payments in May 2021 for this very reason. Given the value of Bitcoin, it’s not surprising that this is a very controversial topic. Bitcoin advocates often argue that such estimates of energy use are misleading or exaggerated, or that banks and centralized payment services do not receive the same level of scrutiny. Some even believe that Bitcoin mining promotes the use of renewable energy, or argue that Bitcoin mining uses generated energy that would otherwise be wasted. Another downside is that mining for cryptocurrencies like Ethereum has fueled massive demand for powerful PC graphics cards (or GPUs), causing widespread device shortages and price spikes. This has caused manufacturers to weaken the mining capabilities of graphics cards to make them less desirable for miners. While the massive scale of the Bitcoin network means that a 51% attack is likely impossible, it doesn’t work the same way for smaller working blockchain networks. For example, both Ethereum Classic and Bitcoin Cash faced such attacks in 2020. Differences of Proof of Work from Proof of Stake Amid concerns about the energy consumption of Proof of Work networks, an alternative consensus mechanism has taken root in the blockchain industry: Proof of Stake. The Proof of Stake system relies on validators to hold large amounts of native cryptocurrency within the network, which users verify transactions and earn rewards. Cryptocurrencies such as Cardano, Algorand, Cosmos, and Binance Coin all use some form of Proof of Stake model. As mentioned earlier, Ethereum is currently taking this approach with the Ethereum 2.0 upgrade; thus, it is estimated that the new network will consume 99.95% less energy than the existing network. Finally, Proof of Stake does not require high-power computers or mining equipment, so the overall network uses much less energy than a Proof of Work system.