What Is Proof Of Work In Cryptocurrency?

“Proof of work” is a technical concept that allows Bitcoin and several other forms of cryptocurrency to function reliably. Proof of work involves purposely making a computer process more effort, time, and/or energy intensive than it would otherwise be in order to make it more difficult for a user to abuse a process or system. For many cryptocurrencies, proof of work is central to accurate record-keeping within a cryptocurrency network and the creation of new units of cryptocurrency.

The idea of proof of work actually predates cryptocurrency, though. The idea was originally put forward by Moni Naor and Cynthia Dwork in 1993 as a way to make it harder for people to carry out denial-of-service attacks or send out spam emails.?

But the concept has risen to new prominence due to the central role proof of work plays in making Bitcoin and other cryptocurrencies function, as well as the undesirable environmental impacts caused by proof of work being done on a mass scale.

But let’s take a step back and take a closer look at what proof of work is and why it is used.

In the context of Bitcoin, proof of work is required as part of Bitcoin mining. Bitcoin mining is a process network member can choose to participate in which allows for the maintenance of the Bitcoin network and its records, as well as the creation of new Bitcoins. Miners can be rewarded for this work by receiving payments from transaction fees and by sometimes receiving newly minted Bitcoins.

The proof of work used in the Bitcoin network requires users’ computers to solve math problems that are purposely designed to require a nontrivial amount of time, computing power, and energy to solve.

The primary function of this proof of work in the Bitcoin network (and in other cryptocurrency networks that use proof of work) is to make it very, very difficult for any user or group of users to improperly alter the transaction records kept on the network or to fraudulently create new Bitcoins.

Bitcoin does not rely on a central authority or trusted party to keep track of who owns what Bitcoins and when. Instead, the system uses a distributed ledger to keep track of all the Bitcoins. This means the record of who owns what Bitcoins is spread out across users (or nodes) of the entire network.?

This use of a distributed ledger allows Bitcoin to operate without a central authority, but it also raises the question of how to prevent bad actors from improperly modifying the ledger. Proof of work addresses this question by making it very, very difficult for anyone to successfully improperly alter Bitcoin’s distributed ledger because doing so would be so resource-intensive.

Proof of work also makes it purposely difficult and time and resource consumptive to create new Bitcoins. This throttles the supply of Bitcoins, which in theory, should help uphold their value.?

Although, as we have seen from Bitcoin’s extreme price volatility, the demand side of the equation plays a significant role in determining a cryptocurrency’s price as well. Some commentators have questioned the utility of Bitcoin and other cryptocurrencies as currencies when their values fluctuate so wildly and quickly. Typically, price stability is seen as a desired attribute of a currency.

An additional consideration with regard to proof of work is that when it is done at a mass scale, as it now is due to the meteoric rise of many cryptocurrencies, the cumulative energy and resource use that results has a negative effect on the environment in the form of excessive energy use and the creation of e-waste. As a result, some cryptocurrencies are turning to other, less resource-intensive methods to do what proof of work attempts to do.

Proof of work is a key concept that helped make digital currency a reality. Whether it will continue to be widely used in the future or will be replaced by an improved technology remains to be seen.

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Author - Staff Writer

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