You must have heard the phrase proof-of-work quite a few times by now. But the problem is you may still not know what it is and that’s perfectly fine.  Many people who get introduced to the cryptocurrency industry are new to blockchain jargon in general. You’re not alone, proof-of-work is just one of many terms that are widely used without ever truly being explained.

We’re going to break down what it is and why it matters in the cryptocurrency system, and we’re looking to do this as simply as possible.

A Very Simple Explanation

Let’s start from the beginning, and we’ll kick it off by starting with two examples.

1) Sometimes, when you are submitting a form on the internet or trying to login to a site, it asks you to verify a few pictures first or enter a line of text in a box to prove that you are not a bot. This is done to prevent, both spamming or, someone taking uncalled-for advantage of the system.

You select the pictures/enter the given text correctly, your action is verified, and you are then allowed to go through the system and perform your desired activity.

Simply put, that is what Proof-of-Work means in a broader perspective: to perform a simple process for an end result to prevent spamming.

2) Another example of this is someone getting a math equation from a textbook. Even though the final answers are often provided, the process is never shared.  Therefore, they must solve the equation step by step to get the answer.

Once the answer is obtained, they can show their step-by-step solution to their professor as a proof-of-work for the answer.

And that’s very similar to how proof-of-work is utilized in blockchain.

Okay… That was… Simple

Moving forward.

Let’s break it down a little further.  Proof-of-work in the blockchain is needed to confirm transactions and to create new blocks. The people that perform these tasks are called “miners” – and depending on the amount of work done and new blocks that are generated, they can earn tokens.

Proof-of-work is the main consensus algorithm used by Bitcoin and Ethereum, which means that for any transaction confirmation, the “miners” have to go through proof-of-work in the form of a mathematical puzzle.

Since there is a team of miners working on a network at a single time, whoever finds the solution to that problem, can, in a sense, post their answer through the distributed ledger technology (DLT) for everyone to see.

Then – and think of the mathematics analogy here that we described above – the answer is then run through a single check through a system that is used to verify proof-of- work answers.

That system is called a “hash function.”

Bitcoin, for instance, uses the SHA-256 hash function.

If a miner for the Bitcoin blockchain has solved a puzzle to confirm a transaction and has received the answer, they will run their proof-of- work with the hash function.

If the answer is correct, the miner is rewarded, and the process they were working on is confirmed and depending on what the action was, a new block is formed.

That explains proof-of-work… but why is it used again?

As described above, it prevents spamming and ensures that the system is not misused. Miners conduct this work to gain the potential tokens. The work required to process transactions is not easy, this is intentional and prevents misuse of the platform.

Secondly, this system also assists in the prevention of denial-of-service (DoS) attacks on the network performed by hackers.

Several Drawbacks

Like any other technological advancement, proof-of-work also has its limitations and disadvantages.

1) The first one that comes to mind is the high expense that comes with mining activities. Due to the nature of these puzzles that operate on a blockchain, specialized computers are required which themselves are expensive, and also consume a lot of power which amounts to high electricity bills for the miners.

2) Furthermore, the work that these miners do for these complex calculations, which is some exceptional computation on their part, does not serve the purpose of doing anything else than just processing that one specific action for which proof-of- work was required. This suggests that those exceptional computers and heavy equipment could be utilized in a far better manner in an improved capacity.

3) The proof-of-work mechanism can also cause what is called a “51% attack”.  This sort of attack takes place when an individual or a group wrongly consumes the majority of mining power. This causes them to control most events on the network, manipulating the results in their favor since they can hog new pending blocks and prevent other miners from completing them. If the 51% attackers get control of the network for a longer period, they can influence the network. If there is no consensus on new blocks, then a fork is formed within the blocks and divides the miners into “groups.” The group with more blocks eventually remains, and the one with fewer blocks gets discontinued. That is why a 51% attack is one of the most threatening notions to a blockchain. However, 51% attacks are hard to execute since they need an immense amount of mining capabilities. Nonetheless, it is a possible threat that cannot be ignored altogether.

Widely Used

By the looks of it, proof-of-work is here to stay.

While Ethereum might implement another consensus in the future soon, Bitcoin has not rolled out any such plans as of yet. This suggests that the proof-of-work mechanism will remain with Bitcoin users for quite some time.

The other cryptocurrencies are divided between proof-of-work and different versions of consensus, but a significant portion of them remain with proof-of-work for now.