What Is Proof of Work (PoW)?
Proof of work (PoW) describes a consensus mechanism that requires a significant amount of computing effort from a network of devices. The concept was adapted 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).
Following its introduction in 2009, Bitcoin became the first widely adopted application of Finney's PoW idea (Finney was also the recipient of the first bitcoin transaction).2 Proof of work forms the basis of many other cryptocurrencies, allowing for secure consensus.
KEY TAKEAWAYS
Proof of work (PoW) is a decentralized consensus mechanism that requires network members to expend effort in solving an encrypted hexadecimal number.
Proof of work is also called mining, in reference to receiving a reward for work done.
Proof of work allows for secure peer-to-peer transaction processing without needing a trusted third party.
Proof of work at scale requires vast amounts of energy, which only increases as more miners join the network.
Understanding Proof of Work
This explanation will focus on proof of work as it functions in the Bitcoin network. Commonly called a cryptocurrency, Bitcoin is technically a token—a representation of ownership of value on the Bitcoin blockchain. The ownership of the token can be exchanged for something of equal value, much like how you hand someone a dollar for a candy bar—they now have the dollar and you have the candy bar.
Proof of Work Blockchains
Blockchains are distributed ledgers that record all bitcoin transactions, similarly to how you would enter transactions in a spreadsheet. Each block is similar to a cell. Information such as transaction amounts, wallet addresses, time, and date are recorded and encrypted into a block header—a hexadecimal number created through the blockchain's hashing function.
