Blockchain: Proof of Work Explained

By Roman Kondratiev

Tl;dr Summary

Proof of work (PoW) currently empowers over 58% of all cryptocurrencies, making it the most popular and reliable consensus mechanism in the blockchain world. By validating on-chain transactions, miners ensure the blockchain’s security (preventing malicious activity), decentralization (not a single entity controls the verification process), and transparency (everyone has access to the history of transactions). PoW is used by Bitcoin, Ethereum, and many other large-volume cryptocurrencies. However, despite its benefits, PoW also has many drawbacks, like consuming enormous amounts of energy and therefore harming the environment due to massive CO2 emissions produced.

Table of Contents

  • Why Does Blockchain Need a Consensus Mechanism?
  • What Is Proof of Work?
  • Proof of Work: Benefits & Drawbacks

Why Does Blockchain Need a Consensus Mechanism?

The basic definition of blockchain is easy to guess from its name. Imagine a digital chain that consists of small pieces of information and extends every time a new block is created. A blockchain’s basic goal is to operate as a distributed ledger that records transactions securely.

Unlike in the traditional finance world, there is no centralized authority here to validate these transactions. In other words, not a single authority is responsible for the system’s security.

Take a look at the following example. Let’s assume I have exactly 1 Bitcoin (BTC) in my cryptocurrency wallet, and I want to send it to my friend John. In this case, every network user must be sure that I don’t send 2 BTC to John (overspending) or that I don’t send 0.5 BTC to John multiple times (double-spending). In other words, every new transaction that is “written” in a block must be guaranteed to be legitimate.

To solve this issue, early blockchain developers concluded that the blockchain network would need a consensus mechanism.

A consensus mechanism is essentially an algorithm that helps us achieve agreement on any given piece of data, such as a transaction. Besides that, the consensus mechanism would allow us to achieve that without any initial trust and totally anonymously. Nowadays, there are a lot of competing consensus mechanisms, such as proof of stake (PoS), delegated proof of stake (dPoS), proof of authority (PoA), and many more. However, it all began with the proof of work (PoW) consensus mechanism.

What Is Proof of Work?

Proof of work is a consensus mechanism that verifies block legitimacy by making miners solve a computational puzzle.

Back in 2009, Bitcoin developers proposed securing the blockchain by verifying transactions through the hashing function SHA-256. This cryptographical function has a distinct input and only one matching output. The output, better known as a hash value, consists of 256 bits. It is generated through a set formula, and—what’s important—it cannot be converted back to the input.

The idea here is that nodes (miners) are competing to find a hash value that will match the input. However, this competition is more like a lottery, since there’s no methodical way to find the hash value other than by guessing. And to guess such a stupidly big number (the maximum value is 2256 − 1), you should put in a lot of computing work. And also have some luck.

Checking if any given miner has solved the riddle successfully is a much easier process: You just compare the miner’s result with the hash value of a given input.

Now you know what stands behind PoW. Miners compete to solve the block first and put in lots of computing work, so it is proof that the transactions are valid.

But why would you as a miner bother to participate in the competition? Simply because it’s highly rewarded. In Bitcoin, if you are lucky enough to add a block to the blockchain, you get 6.25 BTC plus some transaction fees.

Proof of Work: Benefits & Drawbacks

Let’s quickly recap what benefits and drawbacks this consensus mechanism has.


  • Decentralization
  • Transparency
  • Security

  • Large amounts of CO2 emissions, caused by the huge energy demand.
  • Less profitability due to halving (reducing the reward for miners).
  • Overpriced GPUs globally (yep, that’s annoying too!).

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