Proof-of-Work, or PoW, is a very crucial protocol that Bitcoin networks use to confirm all transactions and add new blocks to their chains. With a Proof-of-Work protocol in place, Bitcoin miners strive to complete as many transactions as possible to get rewarded. We are going to look at what exactly is PoW and why it is useful to the Bitcoin network.
The Pacific Ocean is an island known as Yap, where people use Rai stones as currency. The rocks are a bit less practical than banknotes, and their value is dependent on the resources and the effort used to make them. Islanders at the island had to travel long distances to quarry and obtain the valuable stones from other islands. Such dangerous voyages often featured a loss of lives. It is apparent that getting precious Rai stones were challenging, and this is what made them scarce and, of course, valuable.
Long story short, a similar idea of scarcity is the reason why cryptocurrencies have a high value. Proof-of-Work is the verifying idea behind the scarcity and value in the case of cryptocurrencies.
Proof-of-Work is a computational protocol that leverages data and many resources to reward miners, at least if they meet specific requirements. In simpler terms, miners find solutions to problems through a complicated computational, mathematical process. When it comes to PoW, producing is the most difficult bit, and verifying is just easy! Others may describe PoW as a consensus algorithm put in place by cryptocurrencies to prevent cases of double-spends (occurs when the same digital funds are used more than once). It’s just what we call a verifying mechanism for securing Bitcoin’s ledger.
A classic example and the birth of PoW is with HashCash by Adam Back. His algorithm requires people to conduct a certain amount of computing before sending mails, which would help email receivers to mitigate spamming successfully.
Why is Proof-of-Work Important?
You will have a hard time paying for coffee at two restaurants using the same bill. One you pay with the bill in the first place, it is physically removed from your possession. You cant spend it again. What if digital currencies such as Bitcoin, there was a possibility that users pay for another cup of coffee using the same bitcoin. How would this happen? Duplicate a file in your computer, copy, paste it.
This is where Proof of Work comes at play. It is impossible to double spend in the Bitcoin system because the transaction is added to a public ledger called the Blockchain. To be able to write in this public book, a sacrifice must be made to then be broadcast to the whole network, which will confirm if the whole is valid. If everything is valid, the proof of work is equivalent to a reward, whereas if the block is rejected, it will be invalidated, and nothing will happen on the Blockchain.
How much money you have in your digital wallet doesn’t count. What is of great importance is the computational power you have to solve many large puzzles and produce new blocks. What this means is that Bitcoiners who have vast sums of money are not necessarily tasked with making decisions for the entire bitcoin network.
Generally, PoW protects the Bitcoin network by effectively repelling malicious activity by miners who are out to add fake blocks to the network. If an attacker strikes, they will, for sure, require a lot of energy and resources to create artificial blocks. Usually, they will find it useless to attack the network. For this reason, it only makes more sense to stick to the network’s set rules.
PoW is an integral part of the Bitcoin network because it underpins its inherent value. It sets a value floor to Bitcoin because of the production cost, and it protects the scarcity of the network.