Proof of Work, often known as PoW, is a crypto mechanism where network members expend their efforts to solve arbitrary mathematical puzzles. This is widely used for Blockchains, cryptocurrency mining of new tokens and validating different transactions.
This mechanism forces miners to make trillions of numerical guesses when mining to produce a valid block. However, on average, every 10 minutes miners can find one thanks to the complex adjustments.
How Does PoW Work?
Digital currency and NFTs are underpinned by distributed ledgers, also known as Blockchains. These ledgers contain a lot of information, most of it related to transactions, arranged in sequential blocks. This is done to avoid users spending funds twice.
To prevent people from tampering with the ledgers all are distributed to the public, so any altered one would be quickly rejected. In order to detect tampering, a practice called hashes needs to be done. This is executed by long numbers that form part of the PoW.
Any modern computer or device would easily execute these tasks; that’s why crypto networks set a certain amount of difficulty to reduce it.
Advantages of Proof of Work
This mechanism has advantages that provide many benefits to its users. Among these pros, its high level of security is the most important one to remark. It also provides rewards when mining and gives a decentralized method of verifying every transaction.
PoW is also very solid, preventing any abuses or minuses. This is really helpful for Blockchains since most cryptocurrencies need a solid, secure and legitimate foundation.
Disadvantages of Proof of Work
PoW tends to be inefficient due to its slow speed. Transactions can take a long time and fees are also expensive. Its high usage of energy also requires users to have high-end computers and technological devices to realize the tasks.
All of these notable drawbacks conform to the many reasons why most Blockchain platforms decide to find alternatives to Proof of Work. Most of these Blockchains are switching from PoW to PoS.
Another issue that generates concern among the Proof of Work miners is its vulnerability to certain security problems, firewalls for example. If one of these security measures is being run by someone with malicious intent he could turn it off, partitioning the network into two new different ones.
Most Popular PoW Projects in the Market
Since it is the most popular mechanism to mine Blockchains, most popular crypto projects are available for mining this way. These are the most famous cryptocurrencies from the PoW market:
- Bitcoin (BTC)
- Ethereum (ETH)
- Dogecoin (DOGE)
- Litecoin (LTC)
- Ethereum Classic (ETC)
Alternatives to Proof of Work
PoS (Proof-of-Stake) is an interesting alternative to Proof of Work, developed and used by many alternative cryptocurrencies. This mechanism is very versatile and can be easily fitted into any Blockchain use case.
The equivalent of mining in PoS is called stakers. They lock up their funds inside special smart contracts. When a new block is needed, the algorithm grants a specific staker the opportunity to publish this new one. This method of selection is by lottery, based on the staker’s total funds.
For example, if a staker has 35% of the funds on a network, they will have a 35% chance of mining the upcoming block.
PoS offers many advantages related to PoW. The first, and most noticeable one is its cost-efficiency relation. Miners do not need to invest huge loads of money into a modern and powerful computer to do the task. This also saves a lot of electricity.
Greater scalability and throughput are also delivered thanks to PoS. This happens because all the blocks and transactions being done don’t need to be solved through extremely hard equations or puzzles, making the approval fast. In addition, PoS doesn’t rely on physical machines to generate consensus.
While PoS is probably one of the most popular replacements, there are other alternatives to Proof of Work and Proof-of-Stake. One of them is Proof-of-Burn (PoB). This consensus algorithm is relatively new compared to PoW but could be superior.
Its concept is that users need to burn their coins to mine in the PoB protocol. The coins burnt are sent to what’s known as “eater addresses,” taken out of circulation and no longer being able to be used. Once it is confirmed that the coins are registered as unavailable, the users are rewarded.
What makes PoB innovative and unique among its competitors is its way of mining new blocks. Instead of using costly high-end computers and wasting lots of electricity, miners can burn their coins to mine new ones.
As any other, PoB has some weaknesses. First, this method is not openly used; it can only be done for Slimcoins and Peercoins, which makes it almost unusable for other currencies.
Proof-of-Capacity, or PoC, is another consensus mechanism algorithm used for mining Blockchains. The users realize the task using their available hard drive space, deciding the mining rights and transaction validations.
Instead of altering the long numbers in the block header searching for a solution like a PoW system, PoC stores a list of possible solutions. This list is stored in the hard drive disk and starts even before the mining activity is active.
The larger and with more size storage a hard drive has, the more solution values a user can store on it. This considerably increases the chances of winning. Also, miners can use that lottery ticket without limit over and over.
The downside of this method is similar to PoB. It only applies to some cryptocurrencies, in this case Storj, Chia and SpaceMint.
When it comes to listing the benefits of adopting this mechanism, most of them are quite interesting. It’s reported that it is at least 30 times more efficient than PoW when mining. Also, there’s no need to spend upgrading your computer or hard drive. Data can easily be wiped off and the disk used for another thing.
In Proof-of-authority (PoA) Blockchains, the blocks are validated by certain approved accounts, known as validators. Since the process is entirely automated, it does not require validators to be sitting at their computers all the time waiting. Still, it requires that the nodes remain uncompromised every moment.
To become a validator, a network user must earn the right. This is done by accumulating a sufficiently positive reputation. This way validators have an incentive to keep the position they earned once they achieved it.
Validators have certain tasks, such as upholding the transaction process. Failing to do it will result in a negative reputation that will affect their identities.
These are the three conditions that must be met for a validator to get the role:
- Their identity must be verified on the Blockchain they are operating. Also, there has to be a way to cross-check the information in the public domain.
- Since it is meant to be hard to earn the title of validator, the community has the value and right to confirm blocks. Potential validators may be required to obtain a public notary license.
- Every check and procedure in order to establish authority must be done in a completely uniform manner.
Unlike the others, Proof of Weight isn’t a single consensus algorithm. It’s an umbrella term for an entire array of consensus algorithms on the Algorand model.
It’s similar to PoS, but with one difference. The chances of discovering a new block in PoS depend on your funds, meanwhile in Proof of Weight, it uses other weighted values.
Blockchains are designed in a way that the probability of discovering the next block depends on how much data the user has stored in a period of time. This makes it very customizable and scalable.
Proof of Work is the most common and worldwide accepted mechanism of mining Blockchains for cryptocurrency. But this does not mean that alternative methods are wrong or not worth using. On the contrary, every method has its benefits, uniqueness and cons.
When looking for the best alternatives to Proof of Work, PoS comes on top as the most famous and accepted one. Its relatively low electricity and resource usage make it a competent challenger for users looking for quality mechanisms.
Other alternatives, such as Proof-of-Stake, Proof-of-Burn, Proof-of-Authority and Proof-of-Capacity, are not known worldwide. This occurs since the list of cryptocurrencies it allows to mine is limited compared to PoW and PoS.