What Is Proof of Work (PoW)?
Proof of work (PoW) is a blockchain consensus mechanism that requires significant computing effort from a network of devices. The concept was adapted from digital tokens by Hal Finney in 2004 through the idea of "reusable proof of work" using the 160-bit secure hash algorithm 1 (SHA-1).
Following its introduction in 2009, Bitcoin became the first widely adopted application of Finney's PoW idea (Finney was also the recipient of the first bitcoin transaction). Proof of work is also the mechanic used in many other cryptocurrencies.
Key Takeaways
Proof of work (PoW) is a decentralized consensus mechanism that requires network members to expend effort in solving an encryption puzzle.
Proof of work is also called mining, in reference to receiving a reward for work done.
Proof of work allows for secure peer-to-peer transaction processing without needing a trusted third party.
Proof of work at scale requires vast amounts of energy, which only increases as more miners join the network.
Understanding Proof of Work
Proof of work is a concept used in some public blockchains to demonstrate that a program did the work required to propose a new block for the chain. It is commonly called a consensus mechanism because, eventually, network consensus is reached after there is proof the work was done honestly (in this case, "honestly" means there were no attempts to alter data).
Proof of work is provided by sending the information in a block through a hashing algorithm, then adjusting variable fields until a hexadecimal number is reached that has a lower value than the network's difficulty target. This serves as proof that the program expended the computational effort to "hash" the block until a solution was reached.
Proof of Work and Consensus
Here's a quick rundown of the proof of work process on the Bitcoin blockchain.
First, the worker, which is called a miner, creates a temporary file (a block). If it wins the competition to solve for a winning hash, this file will be stored on the blockchain. The block has the four following fields:
The block header contains the following fields:
The mining program assembles this block and places the transactions it has prioritized in the transaction field. It continuously adjusts the nonce and the extra nonce (which is part of the coinbase transaction in the Merkle tree) and sends the information in the block through a hashing algorithm.
It repeats this process until it finds a solution, which is a value less than or equal to the difficulty target. The difficulty target is set so that a certain number of hashes per second must be attempted before a solution is found. For example, on May 17, 2024, block 843,900 had a difficulty target of 83.148T, or 83.148 trillion attempts per second per miner.
The winning hash for that block was:
000000000000000000033028b3c8296ed776653032030cd01290f4345f5a9b6e
This hash provided proof to the network that the miner did the work. The block was added to the blockchain, and the network began its process of reaching consensus.
Consensus
Consensus, the attribute most commonly associated with blockchain proofs, is reached after the block is closed and added to the chain. While working on proposing new blocks and generating winning hashes, each miner also validates each new block as it is added. Each miner broadcasts to the network that the block it confirmed is valid.
New blocks use the previous block's header hash, creating a chain of proof, which leads to network consensus. This is why these proofs are called consensus mechanisms—because they form the basis of how consensus is reached.
Proof of Work vs. Proof of Stake
The two most popular consensus mechanisms are proof of work and proof of stake. Bitcoin's top competitor, Ethereum, used proof of work on its blockchain until September 2022, when its highly-anticipated transition to proof of stake was made. Here are some of the key differences between the two.
Proof of Work
Proof of Stake
Special Considerations
Proof of work mining is a competitive process, with many participants hoping for a profitable outcome. Because minable cryptocurrency has market value, businesses have emerged and overtaken most of the computational power used by proof of work blockchains.
For example, on May 17, 2024, FoundryDigital had the most hashing power on the Bitcoin network, 175 exa hashes per second (EH/s) out of a network total of 673 EH/s. Foundry Digital is owned by Digital Currency Group, a venture firm that has funded or invested in hundreds of cryptocurrency projects. Bitcoin and other cryptocurrencies that use proof of work were designed to be used and hosted by individuals for their benefit. However, individuals have been pushed out of the processes by businesses that have centralized them for profit.
What Is the Difference Between Proof of Work and Proof of Stake?
PoW requires nodes on a network to provide evidence that they have expended computational power (i.e., work) to achieve consensus in a decentralized manner and to prevent bad actors from overtaking the network. Proof of stake requires collateral in the form of staked cryptocurrency to become a trusted participant.
What Is an Example of Proof of Work In a Blockchain?
Bitcoin Cash and Litecoin both use proof of work as consensus mechanisms.
Why Do You Need Proof of Work?
Current financial systems are built around a need for trust. But when it comes to finances, it has been the case time and again that some people cannot be trusted to do the right thing. A proof removes the need to trust that others are acting honestly because it is code. Code is not tempted by money, so if it is written with good intentions and cannot be altered, it can replace our need to trust people we don't know.
The Bottom Line
Proof of work is a consensus mechanism used by many cryptocurrencies to validate transactions on their blockchains and award tokens for participating in the network. It is a competitive process that uses publicly available transaction information to attempt to generate a hexadecimal number less than the network target for that mining period.
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