What Is Proof Of Work (PoW)?

Market Analysis
What Is Proof Of Work (PoW)?

Proof of Work is one of the foundational pillars of blockchain technology that has powered the security and trustworthiness of cryptocurrencies. It has managed to secure the Bitcoin network since its inception. Despite being a lucrative target for attacks, Bitcoin, the biggest cryptocurrency by market capitalisation, has not experienced any significant attacks on its network to date. 


Find out how Proof of Work secures blockchain networks and how it laid the groundwork for a new era of secure, trustless transactions in the digital realm.


What Is Proof Of Work (PoW)? 

Proof of Work (PoW) is a consensus mechanism used by blockchain networks such as Bitcoin to validate and secure transactions and create new blocks in a blockchain. It requires network nodes (miners) to solve complex problems and prove that they have expended computational power (i.e., work) to create new blocks on the blockchain. 


PoW was popularised by Satoshi Nakamoto, the inventor of Bitcoin, who used it to create the first cryptocurrency. One of the issues that prevented the development of an effective cryptocurrency previously was because of the double-spend problem. It refers to the risk of spending the same digital currency or token more than once, thus creating a duplicate copy of the currency. This is particularly pronounced in decentralised systems like cryptocurrencies.


PoW, a type of consensus mechanism, allows multiple participants (nodes) in a network to come to a common agreement regarding the order and validity of transactions. Consensus mechanisms ensure that all participants have a consistent view of the blockchain’s history without relying on a central authority.


This helps maintain trust, prevent double-spending, and secure the blockchain’s network.


How Does Proof Of Work Work

Proof of Work requires participants to expend resources to serve as proof of work done before they are allowed to secure and verify transactions on the blockchain.


When a user initiates a transaction on the network, the transaction is broadcast and added to a pool of unconfirmed transactions and into a block.


In a Proof of Work network, individuals and/or organisations that verify transactions are called “miners”. To become a miner on the network, one needs to own powerful computers and hardware to solve complex mathematical puzzles. 


For example, while regular computers and gaming systems can be used to mine Bitcoin by joining a mining pool, the returns from such endeavours are limited as the rewards are split based on the amount of work each miner contributes. To be competitive, one needs to have specialised hardware such as Application-Specific Integrated Circuit (ASIC) mining machines. 


Miners use these powerful computers and compete with one another to be the first to find a specific hash value that meets the network’s difficulty target. This process is energy and resource-intensive, as it requires significant computational power. 


The first miner that finds this hash value will broadcast their solution to the network for other nodes in the network to verify the solution. If it is valid, the winning miner will be rewarded with the newly created cryptocurrency, which is minted in the mining process, and any transaction fees included in the transaction that they have confirmed.


The new block created will be added to the cryptocurrency’s blockchain. The blockchain will be updated and distributed to all other miners, who each will maintain the updated copy.


Advantages Of Proof Of Work


One common security issue that consensus mechanisms face is the 51% attack. In such an attack, the attacker gains control of over 50% of the network’s total computational power which gives them control over the network. To be a miner on a Proof of Work blockchain, the individual and/or organisation typically have to own specialised mining hardware and use vast amounts of electricity. This level of investment is financially impractical and unfeasible for all but the most well-funded and committed entities.


An individual and/or organisation looking to conduct a 51% attack on Bitcoin would need close to $6 billion to control a majority stake of the network hashrate.


Even if the individual and/or organisation do have the resources to go ahead with a 51% attack, attempting it would undermine the value of the network’s cryptocurrency, which would ultimately harm their own financial interests. This disincentivises attacks on blockchain networks that use Proof of Work which is why PoW is known for its robust security.


Resistance to Sybil Attacks

A Sybil attack is a type of attack on a computer network in which an attacker undermines the authority or power of the service system by creating a large number of fake identities and using them to gain the majority of influence in the network. 


As PoW requires miners to expend resources (computational power and electricity), it makes it prohibitively hard for malicious actors to create multiple fake identities to control the network.


Disadvantages Of Proof Of Work

Proof of Work has had its fair share of criticism over the years and these are some of the more common criticisms levelled against it.


Resource Intensive

PoW requires miners to solve complex puzzles using powerful hardware, leading to significant energy consumption. 


The amount of electricity that Bitcoin consumed in 2022 is estimated to be 127 terawatt-hours (TWh). This is around as much energy as Argentina used for the whole of 2021. The amount of electricity that mining Bitcoin uses is expected to increase in the future as more miners join the network. 


As more miners join the network and contribute more computational power, the total hashrate increases, making it even more difficult to create a new block on the Bitcoin network.



As a PoW blockchain matures, mining on the network becomes increasingly centralised.


In Bitcoin’s early days, anyone with a computer could start mining for the cryptocurrency. As time passes, mining Bitcoin requires more computational power and energy. To competitively mine Bitcoin today, one needs to have specialised hardware such as Application-Specific Integrated Circuit (ASIC) mining machines. These machines can cost anywhere from $4000 to $12,000.


This means only people or companies with the resources can mine Bitcoin which has caused mining to be increasingly concentrated in the hands of a few. 


Limited Scalability

In PoW systems like Bitcoin, the block size (the maximum amount of data that can be included in a single block) and block confirmation time (time taken to mine a new block) are fixed or subject to slow adjustments. This is so as to maintain the security and decentralisation of the network. 


Bitcoin is only able to achieve 7 transactions per second (TPS). On the other hand, Solana, a blockchain that uses Proof of Stake, is able to achieve a transaction speed of 3,000 TPS.


Proof Of Work Vs Proof Of Stake

The two most commonly used consensus mechanisms are Proof of Work and Proof of Stake. Both have the same end goal of achieving consensus on the blockchain, but the way they achieve that differs. Proof of Work requires miners to compete and expend resources to validate transactions while Proof of Stake selects validators randomly with a higher probability given to validators who have a larger amount of stake positions in the coin or token.


Here are some of the key differences between Proof of Work and Proof of Stake:


Proof of Work Proof of Stake
Block creators are called miners Block creators are called validators
Participants need to have the necessary equipment and energy to become a miner Participants must invest and stake their coins or tokens to become a validator
Not energy efficient Energy efficient
Not very scalable  Allows for more scalability (can handle more transactions)
Robust security due to expensive upfront requirement Network control can be bought
Miners receive newly minted cryptocurrency Validators receive transaction fees as rewards


Proof of Work Blockchains

These are some of the blockchains that use Proof of Work:


  • Bitcoin
  • Bitcoin Cash
  • Dogecoin
  • Litecoin 
  • Monero 


Proof of Work is one of the most common consensus mechanisms used by cryptocurrency networks. Despite its limitations, Proof of Work has thus far secured transactions and preserved the integrity of blockchain networks, giving users confidence in the technology and the crypto industry.


Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service. 


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