Proof of Work (PoW)
Proof of Work (also known as PoW) is a mechanism for preventing double-spending in the cryptocurrency world. This is the consensus algorithm for the vast majority of the world's main cryptocurrencies. That's what we mean when we talk about a way to protect the blockchain's ledger.
Until now, Proof of Work has been the most widely used consensus algorithm. While Satoshi Nakamoto first mentioned it in the Bitcoin white paper of 2008, this technology had been in development for much longer.
In the pre-cryptocurrency days, Adam Back's HashCash is an early example of a Proof of Work algorithm. Requiring a tiny bit of computation before sending an email could help recipients avoid spamming. For a legitimate sender, this calculation would cost practically nothing, but for a spammer, it might quickly pile up.
Why is Proof of Work Necessary?
When it comes to blockchain technology, you'll know that transactions are broadcast to the network by users. These transactions, however, aren't regarded genuine instantly. Adding them on the blockchain does this.
Every user has access to the blockchain, which is a massive database that can be used to verify whether or not funds have already been spent. Assume that you and three of your buddies each have a notebook. All of your transactions are recorded in writing: Alice pays Bob five units, Bob gives Carol two, and so on.
Each time you do an action, a reference is made to the previous transaction that brought in the funds. As a result, if Bob paid Carol in two units, the record would read as follows: Bob pays Carol in two units from this prior deal with Alice.
Tracking the units has been made easier now that we have a system in place. Everyone will be alerted immediately if Bob tries to conduct another transaction with the exact units he just sent to Carol. The transaction will not be added to the group's notepad.
It's possible that this would work nicely in a smaller setting. In the end, the buddies will probably agree on who should add transactions to the notepad. Is there a way to get 10,000 people to participate? Notepads don't scale because no one wants to put their faith in a stranger to take care of their personal information.
Proof of Work comes into play here. It ensures that consumers do not spend money that they are not entitled to spend. It is possible to update the blockchain using a PoW algorithm, which combines game theory and cryptography.
How Does PoW Work?
The blockchain is our notebook above. However, instead of adding transactions one at a time, we group them together into blocks. The transactions are made public to the network, and those who create a block will include them. Only after a candidate block has been added to the network as a confirmed block will a transaction be considered valid.
A block addition isn't inexpensive. Proof of Work necessitates the utilization of a miner's resources (the person who creates the block). Until the riddle is solved, processing power is tapped to hash the block's data.
A block hash is generated by passing a block's data through a hashing function. Using a "fingerprint" analogy, the block hash serves as an identifier for your input data.
In order to retrieve the input data from a block hash, it's nearly difficult. However, if you have an input, you can easily verify if the hash is correct. It's as simple as running the function and seeing if the result matches the input.
Providing data that meets particular hash requirements is a requirement for Proof of Work. It's just that you have no idea where you're going. To determine if your data meets the requirements, you must run it via a hash function. To acquire a different hash, you'll need to tweak your data somewhat if it doesn't. One character can have a huge impact on a result, hence there is no way to predict what the outcome will be.
If you're trying to build a block, you're basically playing a guessing game. Hashing is a common method for combining data on all of the transactions you want to include and other relevant information into a single file For this reason, you need to add a variable piece of information to your dataset. If you didn't, you'd get the same hash every time. A nonce is a special type of variable data. As you try again and again, you'll obtain a different hash code each time. And this is what we refer to as "mining,"
Mining is a method of obtaining blockchain data and hashing it with a nonce until a certain hash is found. You can broadcast a new block to the network if you locate a hash that meets the protocol's requirements. At this moment, the rest of the network's participants add the new block to their own blockchains.
Let’s recap what we know so far:
It’s expensive for you to mine.
You’re rewarded if you produce a valid block.
Knowing an input, a user can easily check its hash – non-mining users can verify that a block is valid without expending much computational power.
Everything seems to be going smoothly so far. But what if you're dishonest in your attempts to win? What's to stop you from creating a valid hash by inserting a large number of fake transactions into the block?
So public-key encryption comes into play here. We won't go into great detail in this post, but you can find a thorough explanation at What is Public-Key Cryptography? In a nutshell, we employ some clever cryptographic techniques that allow any user to verify if someone has the permission to move the assets they're seeking to spend. You must sign a transaction before it can be created. Anyone on the Internet can verify that your signature and public key are the same. They'll also verify that you have enough money to cover your expenses and that the total of your inputs exceeds the total of your outputs.
The network will immediately reject any block that contains an invalid transaction. Even if you succeed, it will cost you a lot of money. You'll be squandering your own money and time for no apparent gain.
Proof of Work's brilliance rests in the fact that it makes it costly to cheat while making it lucrative to act honestly. Any sane miner is looking for a return on their investment, therefore they'll act accordingly.
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