PoW (Proof Of Work): The Mechanism Behind The Security Of The Bitcoin Blockchain

If you are just starting to explore the Bitcoin universe, you have surely come across different technical terms that are difficult to understand. Today, we will discuss Proof of Work, the consensus mechanism that ensures the security of Bitcoin. But you are probably wondering: How does it work? Discover in this guide all the intricacies of the most used validation mechanism in cryptographic systems.

What is PoW?

Proof of Work, abbreviated as PoW, is a computer protocol participating in the consensus algorithm. It is used in certain blockchain systems, notably Bitcoin, to verify transactions and add new blocks to the chain. Known as Proof of Work in French, this process helps maintain the security of a network by using processing power or hashrate.

It is the first consensus algorithm to have been launched. This validation mechanism is a process by which networks of miners agree on a single version of the transaction history. The Proof of Work was already in place long before its use by Satoshi Nakamoto in the Bitcoin whitepaper in 2008.

In 1996, HashCash utilized the PoW algorithm to reduce spam in email inboxes. It was then used and popularized by Bitcoin. Other blockchain networks like Litecoin, Bitcoin Cash, Ravencoin, or Zcash also use Proof of Work.

The specificity of Bitcoin’s Proof of Work

To understand its functioning, it is important to know some terms related to this protocol:

• Nodes: computers connected to blockchains responsible for verifying transactions;
• Hashing or hash: a process of creating values using a mathematical function. It is often used to ensure the integrity of data in structures such as the Merkle tree in blockchains;
• Block: a batch of permanently recorded digital transactions;
• Validator: a blockchain user responsible for confirming transactions;
• Mining: process of verifying transactions rewarding operators with cryptocurrencies.

How does PoW work?

The role of Proof of Work is simple: validate transactions on the blockchain through mining.

As a validation mechanism, it therefore serves to establish the conditions for nodes to reach an agreement in the transaction verification process.

The mining process

The PoW is based on mining Bitcoin fork, which is a process that allows verifying the transactions that occur on the blockchain. All BTC currently in circulation on the market have been obtained from this process.

Transactions

Let’s first take the example of a person A who sends 10 BTC to a person B. As digital money, A could claim that they will send 10 BTC to B while they have already sent it to C and no longer have BTC cryptocurrency in their wallet. To prevent this double spending, several verifications must be performed to ensure that the transaction from A to B is indeed valid. This entire process is carried out by mining using Proof of Work.

It is up to the miners to verify that the BTC transaction on the blockchain is legitimate. To do this, they will solve complex mathematical equations necessary for the creation of a block containing several valid transactions.

The reward

When a new block is accepted, it will be added to the chain. The miner who finds the solution will therefore be rewarded in units of BTC for the work they have done in verifying the transactions. The current reward is 6.25 BTC per block. This reward is halved every 210,000 blocks, or approximately every four years, as part of the halving.

At the end of this process, the transfer of BTC from A’s wallet to B’s wallet is verified. Valid operations are recorded on the blockchain and can no longer be modified, while those that are invalid are rejected. So you will understand that Bitcoin mining is also a way to issue new BTC which constitute the reward.

Its role in the creation of new blocks

The creation goes through several stages in which Proof of Work plays a crucial role.

First, transactions are collected and grouped into a block by mining nodes. Each miner selects the transfers they wish to include in their own unit. Operations that have already been confirmed and integrated into the previous block will be removed from the new block. The latter is called a candidate, as it does not yet have a valid proof of work.

The miners must then include the header containing the hash of the previous block. And it is at this stage that the “Proof of Work” truly intervenes, using the SHA-256 algorithm. The miner must find the solution to a complex mathematical calculation for each unit they have formed. To solve the riddle, processing will be carried out via a nonce.

This is a random number that is constantly changed to find a valid hash. When a mining node finds a valid output hash, it is transmitted and verified by the other nodes in the system. When the block meets the system conditions, the proof of work is confirmed.

Importance of PoW in the Blockchain

Thanks to its mechanism, it is very difficult to corrupt the blockchain. Mining ensures the safety of the network and guarantees the immutability of transactions.

Proof of Work and blockchain security

Its mechanism secures the blockchain in different ways:

• Verification of transactions: all transmitted data are verified by all nodes before being confirmed;
• Computational power: operators use their resources to perform the work in order to discourage malicious behaviors;
• Cost: solving the mathematical problem requires significant computational capacity, meaning high-performance mining hardware and substantial electrical capacity.

To summarize, it is a protocol that encourages miners to remain honest. In theory, an attack against this system is easy, as it suffices for the miner to have the majority of the processing capacity to control it. This is called the 51% attack. But in reality, it is extremely difficult to obtain such computational capacity, which would not only be very expensive in energy but also without guaranteed results.

The immutability of transactions

Immutability means that it is impossible to modify a transaction already recorded on the blockchain. Let’s remember, all validated blocks are interconnected in the chain. If someone wants to modify a past transaction, they will then have to modify all subsequent units. This task is extremely difficult and costly, as it has to solve all the associated mathematical calculations again.

Moreover, a unit must meet specific characteristics to be mined to ensure that no mining node can cheat:

• The hash of the mined block header must be lower than the target to be valid;
• The maximum block size for BTC must not exceed 2 MB;
• The timestamp of the block must be less than two hours in the future;
• All operations added must be valid.

Critiques of Proof of Work

It establishes itself as the new standard for decentralized networks. However, it has some drawbacks that constitute the main weaknesses of Bitcoin.

Energy consumption issues

It relies on computational power to validate blocks. The difficulty of mining keeps increasing, which pushes miners to use increasingly efficient equipment to do their work. Yet, this requires enormous processing capacity that is very energy-hungry.

This is the main criticism levied against Proof of Work, prompting other blockchain systems to opt for different validation mechanisms. For example, Ethereum transitioned from Proof of Work to Proof of Stake as part of the “The Merge” operation. Nevertheless, the massive use of green energy should alleviate the problem.

Centralization

PoW is a double-edged sword that aims to decentralize the network but can produce the opposite effect by reinforcing centralization. In its early days, Bitcoin was secured by miners who were independent of each other. This ensured great decentralization of the network, as anyone could essentially participate.

But later, they preferred to collaborate to ensure their work remains profitable. This led to the rise of mining pools that gather independent operators under the banner of central entities. This concentration led to the processing power being in the hands of a small number of actors. In such a situation, the promise of decentralization made by Bitcoin is far from being achieved.

The advantages and disadvantages of Proof of Work

To summarize, here are the main advantages and disadvantages of the Proof of Work mechanism.

Alternatives to PoW

Today, there are several types of validation mechanisms. Among the most popular alongside this “Proof of Work” is Proof of Stake.

Proof of Stake (PoS)

Proof of Stake allows the verification of transfers and the addition of new blocks to the blockchain. It is considered an alternative system to Proof of Work to reduce the environmental impacts related to excessive electricity consumption. While in PoW, the miner must invest in expensive hardware to have sufficient processing capacity, this is not the case in PoS.

In this mechanism, the minter or staker must accumulate a sufficient quantity of cryptocurrency tokens. The minimum number of tokens to hold varies from one network to another. The algorithm randomly selects the minter who will create the next unit. Those who stake the most tokens have a higher chance of being chosen and receiving the staking reward. There are many cryptocurrencies that use Proof of Stake: Ethereum since the Merge, Cardano, Solana, Polygon, Algorand, and Tezos.

Other Consensus Mechanisms

Here are other examples of well-known algorithms:

• Delegated Proof of Stake (DPoS): both validating nodes and delegators are rewarded;
• Proof of Authority (PoA): relies on the reputation of validators called trusted entities;
• Proof of History (PoH): based on the timestamp of operations;
• Proof of Importance (PoI): relies on the number of tokens held, reputation, and the diversity of sources of validated operations;
• Proof of Capacity or Proof of Space (PoC): relies on the ability to retain memory of the data.

Conclusion

At the end of this article dedicated to PoW, we can assert that this type of consensus mechanism greatly contributes to the success and stability of Bitcoin. The complexity of its operation and the computational power it requires offer a robust solution to protect the network against malicious attacks. However, Proof of Work is criticized for its high carbon footprint. Furthermore, the electricity consumption will continue to rise as the Bitcoin hashrate increases. This has led many blockchain systems to adopt this simpler and less costly mechanism. While PoW is a crucial element for the security and integrity of the Bitcoin blockchain, a fundamental aspect of this cryptocurrency lies in its overall operation. For investors and enthusiasts, it is imperative to understand the functioning of Bitcoin in depth. This understanding encompasses not only the PoW mechanism but also how transactions are carried out, the creation of new blocks, and challenges such as energy consumption and risks of centralization. This knowledge allows not only to better grasp the technical and ecological challenges associated with Bitcoin but also to develop more informed investment strategies in the field of cryptocurrencies.

In the context of PoW (Proof of Work), Merkle Trees play a crucial role in the security of the Bitcoin blockchain. These structures, composed of leaves representing transactions, sub-branches, and a root, ensure the integrity of the data by grouping transactions into a block in a cryptographic manner. This process allows for a quick and secure verification of transactions by miners, without needing to download the entire blockchain, thus enhancing the efficiency of the PoW system in validating transactions and preventing fraud.

La Rédaction C.

L'équipe éditoriale de Cointribune unit ses voix pour s’exprimer sur des thématiques propres aux cryptomonnaies, à l'investissement, au métaverse et aux NFT, tout en s’efforçant de répondre au mieux à vos interrogations.