PoW is a consensus algorithm that is used by cryptocurrencies. This consensus mechanism is used by cryptocurrencies to verify new transactions, add them to the blockchain, and create new tokens. Bitcoin was the first cryptocurrency to use this consensus mechanism.
PoW (Proof of Work)
The main essence of the proof of work consensus mechanism is to provide proof that a task has been completed by you, for the creation of a new block. The idea was first introduced in 1993 by “Moni Naor” and “Cynthia Dwork” in an article published by them. The idea was implemented by Bitcoin creators under the alias “Satoshi Nakamoto”.
When a miner receives transaction data from a user, he is required to validate the transaction and add it to the next available block. For validating the transactions and creating a block the miners are rewarded in Bitcoins, making mining a competitive process.
To create new blocks, a miner is required to solve complex puzzles. Every block in the blockchain holds information about the transactions and also has a unique cryptographic hash of its own. To create a new block, miners are required to provide transaction data from the mempool, and the hash value of the last recorded block.
The mathematic puzzle that the miners have to solve is the hash value of the previous block which is unknown to everyone. Solving the puzzle is complete guesswork, as there is no skill involved in solving the puzzle. A miner has to rely on the “hit and trial” method, trying one hash value after another until the correct value is found. The miner likely to win the competition is the one having the most computing power, capable of crunching huge numbers at high speed.
The miner who first identifies the hash value will inform the network and the rest of the miners will review it. The miner could now create a new block and receive his reward. Any block on the blockchain can neither be deleted nor edited. The only way to update the blockchain is by adding a new block.
The complex puzzle is asymmetric, meaning very difficult to solve, but very easy to review.
If an attacker tries to control the network, he will be required to get hold of the 51% of the computing power of the network, which could be very difficult and cost-effective. The network is decentralized, allowing miners to be anonymous or pseudonymous, making it impossible for attackers to manipulate the network.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.
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