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Lesson 2
3 min

What is Proof of Work?

An analysis into the mechanics and implications of Proof of Work (PoW), the consensus mechanism powering cryptocurrencies like bitcoin, and its broader impact on decentralized systems.

Key Points:

  • To ensure nodes do not attempt to ‘cheat the system’, they need to follow a prescribed process, known as a consensus mechanism.
  • Proof of Work (PoW) is a consensus mechanism used in blockchain networks. It determines which miners have the authority to validate new data.
  • Early concepts of PoW date back to the 1990s, evolving into Blockchain via the Bitcoin Whitepaper in 2008.

What is Proof of Work?

The decentralized nature of cryptocurrencies, and the lack of any centralized authorities facilitating the validation of new transactions and data being added to the blockchain, requires a reliance on the decentralized network of nodes to confirm new transactions and add new blocks to the chain. 

In order to ensure the nodes within the decentralized network do not attempt to ‘cheat the system’, they need to follow a prescribed process, known as a consensus mechanism. Proof of Work (PoW) is a common consensus mechanism used in blockchain networks, and determines which participants, called miners, have the authority to validate new data. In instances where the miners are authorized to validate new data, they are rewarded with cryptocurrency for doing so accurately and without cheating the system.

How does PoW work? 

The PoW consensus mechanism allows pseudonymous entities in decentralized networks to trust one another. 

Within the network, miners compete against one another to solve mathematical puzzles and prevent manipulation of the system. The winner gets to add the latest batch of data or transactions to the blockchain as a block, and receives a certain amount of cryptocurrency as a reward. It is important to note that the successful miner only receives their reward after other network participants verify that the added data is correct and valid.

History of Proof of Work

The history of PoW has evolved over several decades, prior to its modern application in blockchain technology, where the earliest concepts began in the 1990s.

In 1992, Cynthia Dwork and Moni Naor, two computer scientists who are known for their industry leading work in cryptography, privacy, and distributed systems, were searching for a solution to prevent email spam and Denial of Service (DoS) attacks. As a result, the pair produced the paper Pricing via Processing, Or, Combatting Junk Mail in the journal of Communications of the ACM in 1992, which outlined the basic fundamentals of a PoW system.

Shifting forward to 1997, a computer scientist called Adam Back, who is often credited as one of the first implementers of a PoW mechanism, established Hashcash. Similar to the work of Dwork and Naor, it was applied as a mechanism to mitigate email spam and DoS attacks. Hashcash made it a requirement that the sender of an email has to perform computationally intensive tasks, known as hashing, to create a PoW that could be verified by the email recipient. Though this wasn’t tied to blockchain technology, it formed part of the groundwork for later developments.

Finally, we move to 2008, when the Bitcoin Whitepaper was being developed by pseudonymous author Satoshi Nakamoto. Arguably, the concept of PoW gained recognition mostly from the Bitcoin Whitepaper, where the whitepaper detailed how Bitcoin’s blockchain uses a PoW algorithm based on SHA-256 (Secure Hash Algorithm 256-bit) to achieve distributed consensus. When we refer back to the work of Dwok, Naor and Back we can see their early concepts all feeding into the approach, considering miners compete to solve cryptographic puzzles, which are also known as ‘hash functions’, to validate transactions.

Lesson 12: A roundup

  • The paper Pricing via Processing, Or, Combatting Junk Mail in the journal of Communications of the ACM in 1992, outlined the basic fundamentals of a PoW system.
  • Hashcash, the first implementation of PoW, made it a requirement that the sender of an email has to perform computationally intensive tasks, known as hashing.
  • The Bitcoin Whitepaper detailed how Bitcoin’s blockchain uses a PoW algorithm called SHA-256 (Secure Hash Algorithm 256-bit) to achieve distributed consensus.
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