As you probably know, Bitcoin (BTC) is the world’s first cryptocurrency. It is the first currency to use blockchain technology . The blockchain consists of various participants that ensure that transactions can be processed.

This must of course all be supervised in the right direction. Otherwise it will be a nice mess. That is why a consensus algorithm is used, which ensures cooperation within the blockchain.

Bitcoin uses the Proof of Work (PoW) consensus algorithm . In this article I explain in an accessible way what Proof of Work is , how it works and which blockchains use this algorithm. I will also tell you what the difference between Proof of Work and Proof of Stake (PoS) is.

Not familiar with consensus algorithms yet? Then it is good to watch the video below before reading this article. In this, Barton (from Blockchain Zoo) explains what a consensus algorithm is.

 

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• View quickly
• What is Proof of Work (PoW) and how does it work?
  • How did Proof of Work come about?
• Which blockchains use Proof of Work?
• The Disadvantages of Proof of Work
  • Not sustainable
  • Not decentralized enough
• The difference between Proof of Work and Proof of Stake
• Conclusion

What is Proof of Work (PoW) and how does it work?

Proof of Work is the world’s best-known and most widely used consensus algorithm. This is because it was also the first consensus algorithm for blockchains; Bitcoin uses Proof of Work.

Within this algorithm, nodes and miners ensure that the blockchain network can validate transactions and that everyone performs their tasks according to the rules. Let’s first look at the difference between these nodes and miners, so that it becomes easier to understand Proof of Work.

The network of a blockchain consists of a lot of nodes. These nodes are actually machines (computers or servers) that are connected to each other . Together they form the blockchain network. Such nodes perform various functions, such as checking other nodes. Nodes also vote on certain choices that need to be made.

These nodes can also be miners. Not every node is a miner, but every miner is a node. Miners are machines within a Proof of Work blockchain that validate transactions and add blocks to the blockchain .

Once all transactions for a block have been sent over the network, all miners get to work as quickly as possible to validate these transactions. For example, they check whether someone has enough crypto coins in their possession to be able to make a transaction. Or that someone is using the correct private key.

How do they do that then? These miners have to solve a mathematical puzzle, which is quite complex to explain . Earlier I wrote an article about how this puzzle works, which you can read here.

All miners do this as quickly as possible, because the miner who approved all transactions first is the winner. The moment a miner is ready, the nodes in the network check whether everything is correct. They do this based on the Byzantine Fault Tolerance (BFT) principle: at least 51% of the network must agree before anything happens.

When the outcome is approved, the miner is allowed to merge his transactions into a block, which is then added to the blockchain.

Each block has its own hash . This is a kind of code that is unique and dependent on the contents of the block. Each new block contains the hash of the last block. This creates a chain of blocks that are linked together, making it impossible to modify the content.

When someone later changes the content of one of the blocks, all the hashes will change. After all, a hash is based on the content of a block. Even if only one bit is modified, the hash of the block will look completely different .

Do you want to know more about Proof of Work? In the video below from AllesOverCrypto, Matt explains what PoW is and how it works.

 

How did Proof of Work come about?

Proof of Work was created by Satoshi Nakamoto in 2009 with the launch of Bitcoin. The Bitcoin white paper described how Proof of Work works, and what problems it is supposed to solve. Here you can read the entire white paper, which also explains how Proof of Work should work.

After Bitcoin used Proof of Work, more and more blockchains started using this algorithm. Later in this article I discuss which well-known blockchains use the Proof of Work algorithm.

Which blockchains use Proof of Work?

Proof of Work is thus the most common consensus algorithm among blockchains. This is partly because it was also the very first consensus algorithm for blockchains. Below is a list of the blockchains that use Proof of Work.

• Bitcoin (BTC) – Every 10 minutes a new block is added to the Bitcoin blockchain.
• Dogecoin (DOGE) – Every 60 seconds a new block is added to the Dogecoin blockchain.
• Ethereum 1.0 (ETH) – Ethereum 1.0 used Proof of Work. In 2021, the blockchain moved to Proof of Stake with the entry of Ethereum 2.0.
• Litecoin (LTC) – Litecoin is the first hard fork to originate from Bitcoin, and a new block is added to the Litecoin blockchain every 2.5 minutes.
• Bitcoin Cash (BCH) – A new block is added to the Bitcoin Cash blockchain every 10 minutes.
• Ethereum Classic (ETC) – Ethereum Classic is the original version of Ethereum (it is a version that is even more traditional than Ethereum 1.0).
• Monero (XMB) – Every 2 minutes a new block is added to the Monero blockchain.
• Dash (DASH) – Every 2.6 minutes a new block is added to the Dash blockchain.

The Disadvantages of Proof of Work

When you see the above list of blockchains, you might notice something. All blockchains are quite old, as they originated in the early days of blockchain and cryptocurrency.

This is due to the many disadvantages associated with the Proof of Work algorithm. That is why new blockchains often choose to use Proof of Stake, or a variant based on this algorithm. Below are the main disadvantages of the Proof of Work consensus algorithm.

Not sustainable

The biggest criticism of Proof of Work is about the durability of this algorithm. All miners in the network will validate the same transactions at the same time. This, as you can probably imagine, consumes an awful lot of power. Subsequently, only one miner is chosen whose work actually contributes to the blockchain.

This means that 9,999 of all 10,000 are wasting power. The energy of only one miner is only used. That is why there are many blockchains that use Proof of Stake for this reason, whereby the validator (as the ‘miner’ in a PoS network is called) is chosen in advance.

Not decentralized enough

The miners with the most computing power have the greatest chance of being the first to validate all transactions. Because hardware gets better every year, miners always need the best and most hardware to provide as much computing power as possible. This creates many ‘ mining farms ‘: large server rooms full of computers that are mining.

There are also many miners who join forces in a mining pool . A mining pool is a group of miners that validate transactions together. This way they have a higher chance of being first. The reward is then distributed among all participants in the mining pool, based on the contribution they have made.

This creates some large groups that add blocks to the blockchain. This does not exactly help with the decentralization of the network. It would be better if there were many more ‘small’ miners, so that the network is much more spread out.

 

The difference between Proof of Work and Proof of Stake

In this article you have already come across ‘Proof of Stake’ (abbreviated: PoS) a number of times. Just like Proof of Work, this is a certain type of consensus algorithm that can be used by blockchain. Although Proof of Work is still the most well-known algorithm at the moment, Proof of Stake is gaining ground in this area.

This is because it suffers less from the disadvantages associated with Proof of Work. We just talked about the sustainability and decentralization of Proof of Work. I will explain the difference between Proof of Work and Proof of Stake, so that you also better understand why more and more new blockchains are opting for a PoS variant.

The first difference is that a Proof of Work network uses miners, while a Proof of Stake network has validators, which add blocks to the blockchain .

A miner must provide the most computing power to be the fastest to validate all transactions. With a PoS network, the validator is already chosen in advance . This is done on the basis of the stake that the validator has deployed. The stake is a kind of deposit that you pay to the network in the form of crypto coins. The higher the stake, the more likely you are to be chosen by the network to add the next block.

The moment the network feels that a validator is not doing his job well enough, they can decide to punish the validator . In that case, part of the stake is taken away, or the network can choose to remove the validator from the network.

Because there is no competition for the fastest in a PoS network, much less power is used within this network than with a PoW blockchain. Also, validators do not have to purchase large and expensive hardware to validate transactions. As a result, it is often cheaper to get started as a validator, despite the fact that you will have to place a stake .

Would you like to relive the information you just read about the difference between PoW and PoS through a video? Then I advise you to watch the video below. Here is more explanation about the difference between these two consensus algorithms.

 

Conclusion

Proof of Work is currently the best-known consensus algorithm for blockchains. This is because it is also the first consensus algorithm, which has been used since the inception of Bitcoin.

With this algorithm, miners start validating transactions. They do this as quickly as possible, because the miner who has already validated all transactions can add a new block to the blockchain. The miner will receive a reward for this.

Despite being used by many different blockchains, such as Bitcoin, Litecoin and Monera, this algorithm has been criticized a lot. For example, a lot of power is needed to run the network, which does not make the blockchain particularly sustainable. Large mining pools also often arise because miners want to join forces so that they have a better chance of adding blocks. This ensures more centralization within the blockchain.

Do you want to know more about Proof of Work or another consensus algorithm after reading this article? Then ask your questions in our AllesOverCrypto Facebook group and our experts will answer all your questions.

Do you have other crypto related questions? The easiest way is to look up your question in our FAQ. What you can also do is that you google your question + “AllesOverCrypto”. You’ll soon be taken to one of our other articles dealing with that topic, so you can quickly learn more about that topic.

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