If you’re familiar with Bitcoin, and maybe even if you’re not, you have probably heard the term “proof of work” mentioned in connection to the Bitcoin blockchain. So what exactly is proof of work, and what role does it play in Bitcoin’s operation? Let’s dive in!
In short, proof of work (or “PoW”) is the consensus mechanism that the Bitcoin blockchain uses to secure its network, protect against fraud, and reward the miners who devote computing power to running the Bitcoin blockchain.
These computers are spread all throughout the globe (they’re “decentralized”) and are independent and unrelated to one another. A decentralized network like this needs a system in place that will allow them to agree on the state of the network and all previous transactions (i.e. they need a system to make sure no fraudulent transactions can be processed). They also need to come to this agreement quickly and confidently in order to keep the network secure and running smoothly.
If that sounds confusing - don’t worry, you’re not alone. This is a complex system that takes most people a long time to fully understand. Let’s take a closer look at how proof of work helps the Bitcoin network achieve consensus, and the role it plays in maintaining Bitcoin’s security.
As we said, the Bitcoin network is maintained and updated by a network of computers (called “nodes” and “miners”) that spans all across the globe. When someone attempts to make a bitcoin transaction, that transaction is sent out to the network, where it is picked up and confirmed by independent nodes.
Roughly every 10 minutes all of the previous transactions that have been picked up by the network get compiled together and put into a “block” - essentially a record of all the transactions processed since the previous block.
In order to incentivize miners to maintain the network, they are rewarded with newly minted bitcoin each time they produce a block. Currently, each block the network produces rewards the miner who produces it with 6.25 new bitcoins, worth more than $100,000 as of August 2022.
Proof of work is the method of determining which miner gets to produce each block and receive the reward. In order to be selected as the block producer, miners must be the first in the network to solve a complex hashing problem that requires extensive amounts of computational power. Essentially, they need to *prove* that they completed a substantial amount of *work* by finding the solution to the problem before anyone else.
Once a miner is selected to produce a block, the other miners in the network verify the transactions to make sure they are accurate. Once all transactions have been verified, miners start working on validating new transactions and competing to solve the next problem and produce the next block.
In order to verify transactions, at least 51% of the network needs to agree on them. So if a malicious miner were to attempt to pass a fraudulent transaction through the bitcoin network, it would have no chance of being included in a block because it would immediately get rejected by the other miners in the network.
This keeps the network secure with extremely high confidence that all transactions are valid, and allows the network to achieve much faster finality than the traditional banking system.
The purpose of proof of work is to maintain the security of the Bitcoin network and prevent malicious attackers from processing fraudulent transactions. Because proof of work is so energy intensive, it makes it practically infeasible for anyone to overpower the network, since they would need to have not only more electricity, but also more hardware than the rest of the entire network combined.
Simply put: proof of work makes it too energy intensive, and therefore expensive, for a malicious attacker to overtake the network and pass fraudulent transactions. It would be so difficult that it can essentially be considered impossible. This is why Bitcoin is considered to be the gold standard in cryptocurrency when it comes to security.
While many other blockchains use a faster, less energy intensive and more scalable consensus mechanism called proof of stake (PoS), proof of work is widely considered to be the best when it comes to network security. Although there is certainly benefit to being able to process transactions rapidly and scale, Bitcoin will likely stay firmly entrenched as the safest, most secure blockchain for years to come.