What is Proof-of-Work?
What is Proof of Work

What is Proof-of-Work? Why is PoW the Foundation of Crypto? 

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Nov 28, 2022
7 min reading time

Proof-of-work is a blockchain consensus mechanism used to confirm and record cryptocurrency transactions. It requires network participants to use computational power to solve complex cryptographic puzzles as fast as possible, rewarding only the first participant to succeed.  

Every cryptocurrency has a blockchain, a public ledger comprised of transaction blocks. Each block of transactions in a proof-of-work cryptocurrency has a unique hash. To confirm a new block to be added to a blockchain, a crypto miner needs to create a target hash that is less than or equal to the targeted block’s hash. 

Miners accomplish this task by employing mining devices that generate computations quickly. The goal is to be the first miner with the target hash because that miner will be the one to update the blockchain and receive cryptocurrency rewards. 

Because finding the target hash is difficult, but verifying it is not, the proof of work concept works well in cryptocurrency. The process is difficult enough to prevent transaction records from being manipulated. At the same time, once a target hash is discovered, it is rather easy for other miners to verify it. 

Although proof-of-work may not be the most scalable model, it has since been adopted by many cryptocurrencies to allow for a secure decentralized consensus.  

Bitcoin was the first cryptocurrency to adopt the application when it was introduced in 2009, enabling it to maintain its top position as the most robust crypto. 

What is Proof-of-Work in Blockchain? 

Proof-of-work, abbreviated as PoW, is a method for confirming and monitoring the production of new coins and transactions on a cryptocurrency blockchain. It describes a system that involves a considerable but manageable amount of work to prohibit frivolous or harmful uses of computer resources, such as sending spam emails or performing denial-of-service assaults. Hal Finney extended the concept of protecting digital money in 2004 through the idea of “reusable proof of work” using the SHA-256 hashing algorithm, as reported by Investopedia.com. 

How Does Proof-of-Work Work in Bitcoin? 

Bitcoin is a cryptocurrency built on top of a distributed ledger known as a “blockchain.” This ledger holds a record of all Bitcoin transactions, organized in sequential “blocks.” The blocks ensure that no user is able to spend any of their holdings twice. In order to avoid manipulation, the ledger is distributed on a whole network of machines and is publicly available. Consequently, the network would quickly reject altered versions. 

In practice, users identify tampering through hashes, which are lengthy sequences of integers that serve as Bitcoin proof of work. Put a particular data set through a hash function, and it will only produce one hash. However, because of the “avalanche effect,” even little changes to any piece of the original data will result in a completely unreadable hash.  

The hash created by a particular function will be the same length regardless of the size of the underlying data set. The hash is a one-way function that can only be used to verify that the data that created the hash matches the original data. 

When a Bitcoin transaction occurs, it is subjected to security verification before being grouped into a block for mining. The hash for the block is then generated using Bitcoin’s proof-of-work process. Bitcoin employs the SHA-256 algorithm, which always creates hashes totaling 64 characters. 

Miners compete to generate a target hash that is less than the block hash first. The winners add the most recent block of transactions to Bitcoin’s network. They are also rewarded with Bitcoin in the form of newly generated coins and transaction fees.  

Bitcoin has a predetermined maximum supply of 21 million coins, although miners will continue to receive transaction fees past that point. 

Bitcoin’s proof-of-work algorithm aims to add a new block every 10 minutes. It does this by adjusting the difficulty of mining Bitcoin based on how quickly miners add blocks. When mining occurs too quickly, hash computations become more difficult. They become easier if the pace is too slow. 

What Other Cryptos Use PoW?   

Below are some of the other notable cryptocurrencies that utilize Proof-of-Work: 

  • Litecoin (LTC): It was one of the first altcoins or Bitcoin alternatives. It was launched in 2011. It is based on Bitcoin’s technology, offering faster transaction speeds. 
  • Dogecoin (DOGE): It is a cryptocurrency based on the Doge meme that debuted in 2013. Despite launching as a joke, it quickly gained a devoted following. 
  • Monero (XMR): Monero employs randomx, a CPU-friendly and ASIC-resistant Proof-of-Work algorithm. It was invented by Monero community members, aiming to make the usage of mining-specific hardware impossible. Monero formerly employed CryptoNight and versions of this technique. 
  • Bitcoin Cash ( BCH): Bitcoin cash validates transactions using nodes and a PoW consensus algorithm. Miners validate transactions using computer power and are compensated in BCH for their efforts. 

What are the Proof-of-Work Alternatives? 


Proof-of-stake is the principal alternative to proof-of-work. As opposed to mining, proof-of-stake cryptocurrencies employ a consensus method based on a process known as staking.  

It debuted in 2012 with the introduction of Peercoin (PPC). It selects transaction validators depending on the number of coins staked or locked up to the network.  

Top cryptos using this method of validation include Ethereum (ETH), Binance Coin (BNB), and Cardano (ADA), among others.  

Proof-of-Stake is more scalable than proof-of-work because it does not require nearly as much computing power. Proof-of-stake cryptocurrencies are more environmentally friendly because they can process transactions faster, with less energy usage, and for lower fees.  

It is also much easier to begin staking crypto than mining because no expensive hardware is required. However, from a security standpoint, proof of work is more established.  

One potential issue with proof-of-stake is that parties with large crypto holdings may have too much power, which is not a problem with proof-of-work. 


Another popular alternative to Proof-of-Work is Proof-of-Burn. This approach is simple to implement. Instead of putting money on computer equipment, the owner burns cryptocurrency coins. The coins are sent to an address where they are irretrievably lost. By doing so, the owner gains the power to mine the system. Proof-of-burn is based on random selection. 

To implement this method, miners can burn either the local currency or the currency of another blockchain, such as Bitcoin. As previously stated, the more coins you burn, the more likely you are to qualify for the selection process. Although this seems to be a good alternative to Proof-Of-Work, it still wastes a lot of resources by requiring more coins to be burned. 

Delegated Proof-of-Stake (DPoS) 

Delegated Proof-of-Stake (DPoS) is another popular alternative to PoW. Unlike its name suggests, it has notable differences with proof of stake. Token holders do not vote on the validity of blocks under the delegated proof of stake (as is the case with proof of stake). Rather, they vote to select the delegates who will validate their votes on their behalf. In EOS, for example, a pool of 21 delegates is picked at random from hundreds of users to confirm blocks. When a delegate fails to deliver a block or if they confirm incorrect transactions, they are replaced by a freshly chosen delegate. 

Another significant distinction between delegated proof of stake and both proof of stake and proof of work is that validators collaborate rather than compete for the next block. This makes delegated proof of stake extremely energy efficient because no resources are wasted attempting to outcompete your competitors.  

However, the absence of competition makes this method of attaining consensus rather concentrated, as whales with enormous numbers of tokens have far more voting power.  

Other alternatives include; the Federated Byzantine agreement system (stellar), Delegated Byzantine Fault Tolerance (NEO), Proof-of-Authority, Proof-of-Space, Proof-of-Elapsed Time, and Proof-of-Importance. 

Final thoughts 

Proof of work was the preferred consensus mechanism for early cryptocurrencies that required a safe, decentralized method of processing transactions. Although proof of stake has recently evolved as a less energy-intensive alternative, many major cryptocurrencies continue to use proof of work. 

* The information in this article and the links provided are for general information purposes only and should not constitute any financial or investment advice. We advise you to do your own research or consult a professional before making financial decisions. Please acknowledge that we are not responsible for any loss caused by any information present on this website.
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