What is Proof of Work (PoW): Definition and Basics

What is Proof of Work (PoW): Definition and Basics

By bit.team

Proof of Work is a consensus mechanism in the blockchain.

To understand its function, it is necessary to delve into the basics of blockchain, as well as the technology of distributed registries. A blockchain is a directory of information blocks or transactions. They are stored sequentially and distributed over the network. This requires a release protocol that allows decentralized data transfer between network participants.

Decentralized data storage is perhaps the most important function of the blockchain.

In the end, this ensures that network participants do not have to trust the correctness of the data. Rather, the blockchain system itself guarantees that the data does not contain errors and is protected from forgery.

Here the proof of work comes to the rescue: according to the description of the technology, on Coinmarketrate.com the blockchain allows the exchange of data between a network of independent participants or users (nodes). Each node at any given time has an exact copy of the entire data set of the blockchain. In order to change the data set, most network participants must simultaneously agree to change the information. One of these mechanisms of agreement or consensus is Proof of Work.

How does the Proof of Work consensus algorithm work?

Proof of work involves solving mathematical problems that require large computational costs to add new blocks or records to the blockchain. This process is also known as cryptocurrency mining.

In order for a node to generate new blocks, it must solve the specified mathematical problem by trial and error. The first member of the network who has found a solution can share it on the network. Then other participants can rely on the newly created data block.

The more computational work a node does, the more likely it is that it will generate blocks.

Providing PoW requires a lot of time and resources, but data verification by other participants is fast and effortless.

The PoW process includes the following steps:

  • In the process of mining, the miner tries to find a result with certain properties using arithmetic operations.
  • The basis for this is transactions combined into a block.
  • The miner verifies the correctness of these transactions by checking the block (“hashing”). The miner uses a hash function, that is, a mathematical function that generates a fixed-length string from a string of indeterminate length. The difficulty here is to find a result with certain properties resulting from the so-called hash function.
  • The first miner who finds a solution receives a block and a corresponding reward (transaction fee). Confirmed transactions are added to the blockchain as a new block.

The resources spent on this process can be attributed, on the one hand, to the operation of computers on which the blockchain (nodes) is stored. According to estimates bitnodes.io , there are currently about 15,820 nodes for Bitcoin alone.

Source: bitnodes.io

However, a much larger share of resources or energy is used to generate new blocks and confirm transactions.

The most famous Proof of Work Coins

The PoW consensus mechanism is used in some cryptocurrencies and ensures the unanimity of data in the blockchain. The following describes the most famous PoW coins listed on Coinmarketrate.com .

  • BTC

Bitcoin plays the role of a pioneer in PoW, since the Bitcoin blockchain was the first to use PoW as a consensus mechanism. It was developed by Satoshi Nakamoto, the creator of Bitcoin, with the idea of combining economic incentives with ensuring the integrity of his blockchain.

In the Bitcoin blockchain, participants must solve cryptographic tasks in the sense of the PoW protocol in order to be able to offer new blocks for the blockchain. A detailed description of the Bitcoin PoW mechanism can be found in Nakamoto’s White Paper.

  • ETH

In the beginning, Ethereum also relied on Proof of Work as a confirmation process in the blockchain. Participants put their computing power at the disposal of a decentralized blockchain to earn coins by successfully calculating a block. However, this process consumes a lot of energy – pretty much even for free.

This happens because only the network participant who first successfully calculated the block creates a new block and receives coins. In this case, all computing power of other participants is provided free of charge. Another bottleneck is the associated high transaction costs when performing dApps.

For this reason, the project is moving from Proof of Work to Proof of Stake (PoS) within Ethereum 2.0. Here, the network automatically votes for which of the active network participants should create the next block. Voting can take place according to various rules, for example, on the basis of coin assets owned by the corresponding participant. Compared to PoW, PoS consumes only a small part of the energy needed to maintain the blockchain, but we will talk about this in the next article.

  • DOGE

Dogecoin is a peer-to-peer cryptocurrency based on the Internet phenomenon Doge. Dogecoin is a derivative of the open source Litecoin project. It is also a peer-to-peer cryptocurrency. Dogecoin uses a proof-of-work algorithm similar to Bitcoin’s algorithm. In Doge, miners also compute new blocks and use them to process pending transactions.

A significant difference from Bitcoin is the number of coins that can be generated. In the case of Bitcoin, they are limited to a maximum of 21 million coins, while Dogecoin was originally limited to 100 billion coins.

  • LTC

Litecoin was developed right after Bitcoin and thus became one of the first altcoins. Litecoin is considered the “silver” of cryptocurrencies, and Bitcoin is digital gold. In principle, this was the goal when developing Litecoin: to find a fast and inexpensive alternative to Bitcoin.

The development of Litecoin is based on the so-called “hard fork” of the Bitcoin blockchain. The opposite of this is a “soft fork”, which involves changing a software protocol that invalidates previously confirmed transactions or blocks. This is done by most miners, who then perform a new update and apply the new rules. On the other hand, a hard fork is when the code has been heavily modified so that the new version is no longer compatible with previous blocks. In this case, the original blockchain is split – in this particular case, Litecoin was created as a result of such a split.

Proof of work and Proof of Share: Differences

The difference between Proof of Stake and PoW lies in the way the transaction is confirmed on the blockchain. In a decentralized blockchain, authentication is carried out using consensus mechanisms.

The differences between Proof of Work and Proof of Stake can be described as follows:

Proof of Work is based on mining. Network participants who solve a cryptographic problem, and thus confirm transactions and generate new blocks, receive a reward in the form of coins.

When using Proof of Stake, mining is not required. Instead, the cryptocurrency is generated by storing its shares in the wallet and unlocking them. This process is called staking. As an incentive to generate new blocks, network participants receive transaction fees accrued on each block as a reward.

Another significant difference is the energy consumption of the two mechanisms. This is disproportionately higher when using PoW, so Ethereum, for example, translates the protocol to PoS.

According to a Cambridge University study, Bitcoin’s energy consumption is 130 TWh per year. This is comparable to the annual energy consumption of countries such as Argentina. In contrast, Ethereum’s energy consumption is only 26 TWh per year.


PoW is a proven consensus algorithm used in cryptocurrencies such as Bitcoin or Ethereum. The Bitcoin algorithm is called SHA-256, the Ethereum algorithm is called Ethash.

PoW provides protection of the blockchain from hacking, but the algorithm has a number of disadvantages. In particular, solving cryptographic problems requires a lot of time and energy, and therefore is very costly. For this reason, many cryptocurrencies today rely on Proof of Stake.