What is Proof of Work (PoW) in Blockchain?

What is Proof of Work (PoW)?

Proof of Work (PoW) is a blockchain consensus mechanism that requires significant computing effort from a network of devices. The concept was adapted from digital tokens by Hal Finney in 2004 through the idea of ​​”reusable proof of work” using the 160-bit secure hash algorithm 1 (SHA-1).

After its launch in 2009, Bitcoin became the first widely accepted application of Finney’s PoW idea (Finney was also the recipient of the first bitcoin transaction). Proof of work is also the mechanic used in many other cryptocurrencies.

Proof of work understood

Proof of work is a concept used in some public blockchains to demonstrate that a program has done the work necessary to propose a new block for the chain. This is commonly called a consensus mechanism because network consensus is eventually reached after it has been proven that the work was done honestly (in this case, “honest” means that there were no attempts to change data).

Proof of work is delivered by passing the information in a block through a hashing algorithm, then adjusting variable fields until a hexadecimal number is reached that has a lower value than the network’s difficulty target. This serves as proof that the program has expended the computational effort to “hash” the block until a solution is reached.

Proof of work and consensus

Here is a quick overview of the proof of work process on the Bitcoin blockchain.

First, the worker, called a miner, creates a temporary file (a block). If it wins the competition to solve for a winning hash, this file will be stored on the blockchain. The block has the following four fields:

The block header contains the following fields:

Software version Previous block’s hashMerkle rootTimestampDifficulty targetNone

The mining program assembles this block and places the transactions it has prioritized into the transaction field. It continuously adjusts the nonce and the extra nonce (which is part of the coinbase transaction in the Merkle tree) and passes the information in the block through a hashing algorithm.

It repeats this process until it finds a solution, which is a value less than or equal to the difficulty objective. The difficulty target is set so that a certain number of hashes must be tried per second before a solution is found. For example, on May 17, 2024, block 843,900 had a hard goal of 83,148T, or 83,148 trillion attempts per second per miner.

The winning hash for that block was:

0000000000000000000033028b3c8296ed776653032030cd01290f4345f5a9b6e

This hash provided proof to the network that the miner did the work. The block was added to the blockchain, and the network began to reach consensus.

Consensus

Consensus, the property most associated with blockchain proofs, is achieved after the block is locked and added to the chain. While proposing new blocks and generating winning hashes, each miner also validates each new block as it is added. Each miner broadcasts to the network that the block it confirmed is valid.

New blocks use the previous block’s header hash, creating a chain of proofs, leading to network consensus. This is why these pieces of evidence are called consensus mechanisms—because they form the basis of how consensus is reached.

Proof of Work vs Proof of Stake

The two most popular consensus mechanisms are proof of work and proof of stake. Bitcoin’s top competitor, Ethereum, used proof of work on its blockchain until September 2022, when its highly anticipated transition to proof of stake was made. Here are some of the key differences between the two.

Special considerations

Proof of work mining is a competitive process, with many participants hoping for a profitable outcome. Because mineable cryptocurrency has market value, businesses have sprung up and overtaken most of the computing power used by proof-of-work blockchains.

For example, on May 17, 2024, FoundryDigital had the most hashing power on the Bitcoin network, 175 exa-hashes per second (EH/s) out of a network total of 673 EH/s. Foundry Digital is owned by Digital Currency Group, a venture that has funded or invested in hundreds of cryptocurrency projects.

Bitcoin and other cryptocurrencies that use proof of work are designed to be used and hosted by individuals for their benefit. However, individuals were pushed out of the processes by enterprises that centralized them for profit.

The Bottom Line

Proof of Work is a consensus mechanism used by many cryptocurrencies to validate transactions on their blockchains and award tokens for participating in the network. It is a competitive process that uses publicly available transaction information to attempt to generate a hexadecimal number less than the network target for that mining period.

The comments, opinions and analyzes expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more information. As of the date this article was written, the author owns BTC.