Blockchain

Proof of work

• Cryptocurrencies do not have centralized gatekeepers to verify the accuracy of new transactions and data that are added to the blockchain. Instead, they rely on a distributed network of participants to validate incoming transactions and add them as new blocks on the chain.
• Proof of work is a consensus mechanism to choose which of these network participants—called miners—are allowed to handle the lucrative task of verifying new data. It’s lucrative because the miners are rewarded with new crypto when they accurately validate the new data and don’t cheat the system.
• Proof of work is a software algorithm used by Bitcoin and other blockchains to ensure blocks are only regarded as valid if they require a certain amount of computational power to produce,” says Amaury Sechet, founder of the cryptocurrency eCash. “It’s a consensus mechanism that allows anonymous entities in decentralized networks to trust one another.
• The “work” in proof of work is key: The system requires miners to compete with each other to be the first to solve arbitrary mathematical puzzles to prevent anybody from gaming the system. The winner of this race is selected to add the newest batch of data or transactions to the blockchain.

Winning miners only receive their reward of new cryptocurrency after other participants in the network verify that the data being added to the chain is correct and valid.

• “Miners work to solve complex math problems to earn a reward,” says Dan Schwenk, chief executive officer of Digital Asset Research.
• These are laborious problems that require significant computer power and energy to solve. Since miners have invested significant resources in the computer equipment and energy costs required, they’re motivated to accurately validate transactions.

Criticism of Proof-of-Work

Proof of work systems have attracted a fair amount of criticism, mostly surrounding their massive appetite for electric power:

• Energy Requirements:  According to the New York Times, in 2009 you could mine one Bitcoin using a regular desktop computer and a negligible amount of electricity. But in 2021, you would have needed to consume an amount of electricity equal to what a standard American home would use in nine years to mine one Bitcoin.
• Centralization: One of the most attractive features to cryptocurrency investors is decentralization. Thanks to the intense computational and energy demands of proof of work, however, mining operations have become centralized in a small number of major outfits. This could potentially lead to a few entities controlling the majority of cryptocurrency operations.

Video : Basics

Question / Answer

Bibliography/References

• None