Bitcoin

What Is POW (Proof Of Work)? and How It Works in Bitcoin.

If you’re following the crypto community for a while, you heard about the Proof Of Work concept used by cryptocurrencies to mine coins.

To understand the mining process in cryptocurrencies you have to understand POW.

Now, let’s look into what POW actually is.

What is POW (Proof Of Work)?

Definition of POW is this:
POW is a consensus (algorithm) used to confirm transactions and produce new blocks to the blockchain.

Here is a simple example for you to understand the POW.

Let’s assume a Sudoku contest. In this contest, only you and your 3 friends are participating for the prize.

For you and your friends the same Sudoku puzzle to solve, whoever solves Sudoku first become the winner.

If you become the winner, to be considered as a winner, you have to show your solved Puzzle to your friends to confirm you find the right answer first.

POW is exactly working like the above example. Whoever wins in producing a new block to the blockchain, they get an incentive to mine that block.

Let’s Understand What POW Is in Reality.

In the coin blockchain, POW is helping to add new blocks to the chain.

To add the new block in coins blockchain first, miners have to find the valid hash.

To find that hash, miners have to use previous block data plus a random number (called a nonce) to connect that data to a new block data for producing a valid hash.

For finding that random numbers miners use a computer to find out that random number fastly.

To compute random number faster miner can use upgraded, high performing CPU units.

How POW Works in Bitcoin.

In Bitcoin firstly transactions received by the nodes which are running full Bitcoin blockchain after receiving they confirm the transaction authenticity for adding it into a block.

After confirmation by the node, the miner who has the computational power to create a block receives the transaction and combines it into other confirmed transactions to form a block.

Remember, all the combined transactions size should not exceed 1 MB.

This initial 1 MB block is called as the candidate block which is not yet ready for going into the blockchain.

Before going into the blockchain, a block must have the valid header.

The valid header is nothing but the data combined in the current block along with the most recent block header and the nonce.

To consider as a valid header a hash function (in bitcoin it is called SHA 256) computes the hash value in such a way that the new resulting hash can generate valid output.

Then the outputted hash again compared to the target value. The target value is nothing but the zeros which output hash having.

At the time of writing the post, the target value was set to 17 to 19 zeros.

If a hash has a lower number of zeros than the target value then, the block is considered as valid one to add into the blockchain.

If a hash exceeds the target value then, miners have to make adjustments in the nonce for generating a valid header that leads to a valid hash.

To find the valid nonce miner have to brute-force using the computer.

After passing all the steps, a block is again examined by nodes to confirm the authenticity and added to the blockchain.

Note: One Bitcoin block size considered as 1 MB that means anywhere between 1,500 to 3,000 transactions can be recordable on 1 block, it is usually up to the miner who mined that block to decide how many transactions can be put on the block.

All these things happen in Bitcoin blockchain transparently.

Until this point, the POW system seems the right fit for coin blockchain, but it is not.

Because every system has its advantages and disadvantages also the POW.

Here are some advantages and disadvantages of POW.

Advantages and Disadvantages of POW.

Let’s know some advantages first.

Advantages.

No Entry Barrier :
That means entering into the POW mining process is easy because anyone who has computing power can join the network.

No Risk :
The only need to join POW is to have computing power. That’s it, you don’t need any pre-deposits to join the network.

Disadvantages.

These days the POW process is considered an old mining process because of its more disadvantages than the advantages.

This Process Needs Huge Power :
If you want to mine Bitcoin then, you need a high performing computer that also consumes huge electricity power. That’s because of high competition to mine Bitcoin.
According to an economist, Bitcoin miners alone use about 54 terawatt-hours of electricity that’s enough to power five million households in the US were even powered by an entire country of New Zealand or Hungary.

51% Attack :
The POW mining process can lead to a 51% attack, that means if 51% of miners get together in the POW system, they can control the entire blockchain and even possible to reject coin transactions and also reverse the transaction.

For example Bitcoin blockchain.

51% attack

The above picture shows Bitcoin mining pools information.

In the Bitcoin blockchain if 51% of pools get together to take control of the blockchain they can do it easily, and that leads to not accepting transactions and demand higher fees, entering false or dual transactions.

POW Is Expensive :
To set up mining pools is one of the expensive processes, not everyone can do it, so POW can be expensive in popular and high demand coins like Bitcoin because miners need more power and hardware to mine a huge amount of transactions.

POW Makes Blockchain Centralized :
I have already shown you what 51% attack is, and these kinds of attack can make blockchain controlled by some people.

Conclusion.

Instead of a number of disadvantages, POW is still one of the popular mining methods and most of the cryptocurrencies using this method like Bitcoin, Monero, Dash list goes on.

But changes are needed because now POS (Proof Of Stake) is particularly interesting and now a growing portion of the cryptocurrency arena is trending toward it presently.

Now tell me what you think about POW mining should it survive in the future?

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