hen checking out cryptocurrency, you often come across unfamiliar words that you have trouble visualizing. PoW” can also be difficult to visualize for those who are just starting to get interested in cryptocurrency.
Here we summarize what PoW is, how it works, its advantages and disadvantages, as well as the future and potential of PoW. The information is presented in easy-to-understand language so that it is not difficult for beginners of cryptocurrency.
What is PoW?
First, let us briefly explain what PoW is.
Abbreviation for Proof of Work, one of the blockchain systems
PoW stands for Proof of Work and is one of the consensus algorithms in cryptocurrency mining.
For those of you who say, “I don’t understand mining or the consensus algorithm,” let me briefly explain each one.
What is Mining?
Mining is a system that functions to create new cryptocurrency blockchains and approve transaction records, such as money transfers.
Bitcoin and most other cryptocurrency maintain their monetary function through this mining.
What is a consensus algorithm?
Consensus algorithm is also used to mean “calculation method for approval”.
Mining is the program that records transactions and performs the computational processes to generate the blockchain; PoW is one of these algorithms, which has been and continues to be the dominant one since the birth of cryptocurrency.
PoW is used in many cryptocurrency, including Bitcoin (BTC)
The first cryptocurrency to come into the world was Bitcoin.
Bitcoin’s blockchain is authorized by PoW, and Bitcoin is not the only cryptocurrency to implement PoW.
For example, the following cryptocurrency are listed
- Bitcoin Cash (BCH)
- Litecoin (LTC)
- Ethereum (ETH) (*will migrate to PoS in the future)
- Iserium Classic (ETC)
- Monacoin (MONA)
PoWs are also used in many other cryptocurrency, including anonymous cryptocurrency.
PoW Structure and Characteristics
Next, let’s look at how PoW works in mining, its mechanism, and its advantages and disadvantages.
Transactions recorded on the blockchain do not disappear in principle.
The blockchain has a role similar to that of a bank ledger.
Transactions recorded on the blockchain never disappear, except in special cases such as hard forks. From the birth of the cryptocurrency to the present, all transactions are recorded on the data.
Coin rewards are given to those who calculate more
The third party that performs the recording and calculation work on this data has its own computer perform the calculations via the Internet.
In exchange for this calculation work, cryptocurrency can be earned as a reward; PoW has a system in which “coins are awarded to volunteers who have processed many calculations” at this time.
Advantages of PoW
Some of the benefits of PoW include
Mining anytime, anywhere in the world.
Mining cryptocurrency is essentially open to anyone in the world.
In the case of national currencies, remittance transactions are recorded in a ledger by the bank or other institution that requested the remittance. Mining allows banks to record their operations in the blockchain, which is then approved by a third party to avoid fraud such as manipulation of amounts.
Coins tend to create value.
The algorithm for major coins, led by Bitcoin, remains PoW.
As a result, the number of miners and coin holders is large, and distribution and transactions are relatively stable.
It could also be argued that the disadvantage of “soaring costs,” discussed below, is in turn driving up the price of the coins themselves.
Disadvantages of PoW
Although PoW is an excellent consensus algorithm, the following problems exist
Huge electricity bill.
One of the major disadvantages of PoW is the cost of power.
The higher the cost of processing blockchain calculations, the smaller the profit from the rewards obtained. Current miners are making efforts to find countries with low electricity costs and to set up their facilities.
Power consumption is one of the causes of the high threshold for individual mining in PoW.
51% Attack Concerns
One of the bitcoin mining problems is the “51% attack”.
This is due to the fact that the PoW algorithm is judged by “computational power”. This is because in the unlikely event that a malicious entity or organization mines more than 50% of the bitcoins, it would have a monopoly on the right to approve transactions.
Recently, it has been said that due to the soaring costs mentioned above, the speed at which more than half of bitcoins are calculated is not feasible. This is because there is no advantage in committing fraud if the cost greatly outweighs the reward.
The Future of PoW
While the PoW mechanism is excellent and has its advantages, we have also seen that it has its problems, so how do we see the future of the PoW?
Problems could be eliminated.
While issues such as 51% attacks and power costs cannot be overlooked, no cryptocurrency has yet been eliminated due to the current PoW.
The fact that it is operational and has been in circulation for many years, even with some problems, deserves a certain amount of credit. In addition, there remains the possibility that problems will be resolved in the future through improvements in machines and changes in the mining environment.
The Rise of New Algorithms
New algorithms have already been developed with the objective of eliminating the disadvantages that PoW has.
PoS is a type of randomness that can be used in addition to PoWs.
cryptocurrency that currently employ PoW may migrate to PoS in the future. Individuals who hold cryptocurrency will mainly use it for purposes such as purchasing at cryptocurrency exchanges and transferring money without mining.
We should not be fooled by strong words such as “PoW is old” or “PoS era is coming,” but should carefully check the current situation and charts.
It is also important to check the latest developments such as PoS
Newly issued cryptocurrency are becoming more PoS than PoW. However, one cannot immediately conclude from this fact that PoWs have no future.
Even if a coin is currently using PoW, the key is to ensure that it is well developed in accordance with the latest trends. It may also be necessary to consider such factors as whether the coin has excellent developers and whether it is in partnership with a major company.
Whether the new algorithm is superior to PoW depends precisely on future developments. In fact, some have already pointed out the disadvantages that PoWs have.
It is also hard to say to what extent new coins with PoS will circulate; whether the vulnerability of PoW will be a problem, or whether the problem can be resolved, it is important to keep up to date with the latest developments in buying and selling cryptocurrency.
Summary
PoW is one of the algorithms in cryptocurrency mining and has been implemented in major coins such as Bitcoin.
While there are some issues such as cost and 51% attacks, no coins have disappeared because of the PoW, and none have so far.
A total view of the latest information, including coexistence with new algorithms, the state of mining, and the distribution of the coins themselves, will provide a correct prediction of their future potential.
If you want to own cryptocurrency, you can start by opening an account on a cryptocurrency exchange or seller and buying coins that you like. By holding coins, you will have more access to live information about cryptocurrency.