October 17, 2022

Proof of Work; The Complete Beginners Guide.

The Proof of Work (PoW) consensus mechanism is the method by which transactions on many early blockchains are verified. It started with Bitcoin in 2009 which still runs on PoW. Other early cryptocurrencies that still use PoW include Ethereum, Litecoin and Dogecoin.

Proof of Work; The Complete Beginners Guide.


Cryptocurrencies have become more commonplace in the last few years and the majority of people still don't understand what they are, what they do and how they work. In this series of articles, we will smash through this huge barrier to entry and uncloak the mysteries of the cryptocurrency world.

In this article, we will be diving into Proof of Work (PoW) blockchains.

So grab your mining helmet and let's dive in!

What is Proof of Work (PoW)

The Proof of Work (PoW) consensus mechanism is the method by which transactions on many early blockchains are verified. It started with Bitcoin in 2009 which still runs on PoW. Other early cryptocurrencies that still use PoW include Ethereum, Litecoin and Dogecoin.

How does Proof of Work, Work?

The “work” element of Proof of Work, refers to miners solving incredibly complex “puzzles”, which are then easily verified by all the other miners on the network. Once solved and verified, a new block is added to the blockchain and the miner responsible for solving it is rewarded.

Don’t worry, I know what you’re thinking...

What exactly is a blockchain?

Put simply, a blockchain is a record of all the transactions performed on that network, this ledger is referred to as distributed because it is public (distributed across all the miners). This distributed element is the essence of decentralisation, it prevents fraudulent transactions. Any altering of the record would be very quickly rejected by everyone else.

Think of it like this, You decide to make a counterfeit pair of Nikes but you accidentally put the swoosh on the wrong way round. Upon wearing them to meet your friends (who all also wear Nikes) they immediately notice the error and you are ejected from the friendship group for trying to cheat the system, leaving you shunned and alone!

(ok so, you might not end up lonely with no friends, but you get the point right?)

What exactly is a miner?

Sadly, mining cryptocurrency does not involve Dwarves, axes and helmets (it would be much cooler if it did though).

Proof of work crypto miners are the people who own the computers that solve complex puzzles. For the first few years of Bitcoin (the first blockchain), mining was done by individual enthusiasts but as the network grew and people started noticing the potential to make a lot of money from mining, so did the mining entities.

Fast forward to today, in order to be able to compete profitably, a mining operation requires a huge amount of state of the art computers that require a vast amount of energy.

Verifying a block on a proof of work blockchain is essentially a race to solve the puzzle first. Those with the most computational power have the advantage and are more likely to get the rewards for mining. This is one of the biggest disadvantages of proof of work but we’ll get that a little later.

Proof of Work (PoW) vs. Proof of Stake (PoS)

While both protocols aim to do the same thing (protect the decentralisation of the network), they both go about it in a different way.

We’ve talked about PoS blockchains in other articles, but what about PoW and what one is best?

For context, we will reiterate some of the points made above.

PoW; the first generation of blockchains.

First-generation proof of work blockchains (such as Bitcoin and Ethereum) require new blocks to be mined. Miners compete to be the first to solve the complex mathematical puzzle and thus earn the right to produce the next block in the chain.

The first one to solve the puzzle produces the block and therefore earns the rewards. The larger the computational power of your mining rig, the higher the chance of earning rewards.

Imagine racing your family minivan against a Formula One racing car. Both can do the job, but the F1 car has more power, so will always win!

What are the Advantages of Proof of Work?

  • Proof of work blockchains (like bitcoin) are incredibly secure. For one entity to alter the blockchain and thus gain a fraudulent advantage would require such a huge amount of computational power that the rewards for doing so would be vastly outweighed by the costs to do it
  • Blockchains that use a proof of work consensus mechanism for verifying transactions are incredibly decentralised. Transactions are verified by the nodes (a computer or group of computers that hold a copy of the blockchain) on the network, removing fees taken by the middlemen in traditional finance (like banks and loan companies).
  • Proof of work miners can earn rewards for helping keep the network running. Rewards come in the form of block rewards (for solving the next puzzle) and transaction fees.
  • Proof of work blockchains are battle-tested.They were the first generation of blockchains, with the oldest (Bitcoin) running since 2009.

What are the Disadvantages of Proof of Work?

  1. Only miners can earn rewards for solving the puzzles (creating blocks). Many see this as a major downside because it limits regular coin holders to only be able to profit when the market value of the coin goes up. Proof of stake blockchains fix this.
  2. The competition for rewards is purely down to having higher computational power and thus higher rewards come at a cost. Increased energy consumption results in both a higher financial and environmental costs.
  3. Financial costs. The cost to buy and run enough computers to mine cost-effectively is so high that it creates a huge barrier to entry for individuals.
  4. Environmental costs. We are fully aware by now that increased energy use contributes heavily to climate change. The amount of electricity required to run such huge computational power is a major flaw in the PoW consensus mechanism.
  5. Regular users of the blockchain cannot earn staking rewards.
  6. Difficult to scale the network. PoW blockchains have mathematical limitations on the ability of a blockchain to grow. Put simply, the security of PoW blockchains require all miners to work on solving the same block, which in turn limits the speed at which the network can run.

Proof of Work Blockchain FAQs

Is proof of work scalable?

The ability to scale up proof of work blockchains is limited by the very mathematics that enables them to run whilst maintaining security and decentralisation.

Bitcoin has managed to become the largest cryptocurrency by not having lots of dApps built upon it, whereas Ethereum has run into such huge problems by having many dApps running on it. So much so that transaction fees have grown astronomically. Ethereum is currently being completely redesigned to change from proof of work to proof of stake.

Is proof of work obsolete?

Whilst many new large projects (e.g. Cardano) are running on proof of stake (see our proof of stake articles to find out why), proof of work blockchains, especially bitcoin, will probably remain.

Proof of work isn’t obsolete but there are more efficient, more scalable and less costly (both financial and environmental) blockchains in operation now.

Final Thoughts.

Proof of work blockchains were the first generation of cryptocurrency networks. But like every technological advance, newer, better options are developed; after all, we aren't still using the first iteration of the iPhone right?

Proof of work blockchains have issues:

  • Costly to run.
  • Environmental costs.
  • Scalability problems.
  • decreased decentralisation when compared with proof of stake.
  • Slower transaction speed than proof of stake.
  • High transaction cost.

We will continue to see refinements in the way the cryptocurrency ecosystems are built, the future will be very exciting!

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