Learning crypto?
Our new handy guide simplifies it all. ‘Crypto Categories Unveiled’
Download here
Proof of work (PoW) is a cryptographic mechanism that safeguards the legitimacy of digital transactions. Many cryptocurrencies, including Bitcoin, use proof of work as the basis for their crypto mining mechanism.
What is proof of work? (PoW)

Essentially, proof of work requires that a complex mathematical puzzle is solved before a new block of transaction data can be made. Solving the puzzle requires a large amount of processing power, which translates into high energy costs. Mining bitcoin and other cryptocurrencies accordingly requires significant amounts of electricity and processing power. But that’s not necessarily a bad thing, since investing so much energy and money into mining is also the reason why bitcoin transactions can be trusted as legitimate transfers of value.

Proof of Work Essentials

  • The method used to secure transactions on a blockchain.
  • The mechanism used in cryptocurrency mining.
  • It is a key element in preventing double-spending attacks.
  • Requires solving complex cryptographic problems in order to create new blocks on the chain.

Why do we need proof of work?

Cryptocurrencies like Bitcoin do not have a physical form. This makes them vulnerable to double-spending attacks. A double-spending attack occurs when someone spends the same coins twice. After spending them for the first time, they reverse the transaction or delete all records of it, thus allowing them to complete a transaction without actually giving away the coins.

Proof of work (PoW) is one of the essential parts of the blockchain mechanism, helping prevent the data in the blockchain from being tampered with. Generating a PoW requires a significant amount of processing power, which translates into energy costs, to validate each transaction in the network. Since all transactions require a certain amount of work to be verified, creating false transactions also requires work and money. This safety feature ensures that all the transactions are legitimate and that coins are only spent once.

The method has proven to be a reliable way of securing crypto networks, but it does create an immense energy requirement. Because of this, alternatives to proof of work are being explored by many cryptocurrencies. The frontrunner among these is proof of stake.

How proof of work functions

Data is stored on a blockchain in aptly-named blocks. These are strung one after another on a continuously growing chain. Each block features a unique hash value, which functions as an ID number and is made up from several known elements, including transactions and the hash of the preceding block, and a random unknown number, called the nonce.

If any changes are made to any of the elements that comprise the hash, the block’s hash changes significantly. This means that changing a block on the chain requires the changing of all blocks that come after it as well, since their hash would be different. Because proof of work is needed to figure out each hash, immense amounts of computational work are necessary to modify the transaction data in a blockchain.

Guessing the nonce

Solving proof-of-work problems is more like a lottery than a competition. Like a gold miner hits a vein of ore with their pickaxe, hoping to strike gold, a Bitcoin miner hits a new block with strings of data, hoping to unlock it. The main difference is that the Bitcoin miner is whacking away blindly.

Most of the elements that make up a block are known in advance. The miners’ job is to figure out the only variable that is not known in advance – the nonce. This is a randomly generated string of numbers that can only be figured out through trial and error.

Miners have no clue how close they are to finding the nonce. All they can do is try over and over, until one of them randomly gets it right. It is a system where you cannot work smarter, you can only work harder. Each attempt to solve the puzzle requires a certain amount of processing power and, the more power you have, the more attempts you can complete in the same amount of time. This makes it more likely that you are the one who mines the block and reaps the reward that comes with it.

Block rewards as payment

Miners are compensated for their work with transaction fees as well as newly mined coins. With most cryptocurrencies, solving a proof-of-work problem creates a couple of new coins. These coins are awarded to the miner who solved the problem. Some cryptocurrencies have no limit on how many new coins can be mined. Others, like Bitcoin, have a fixed amount of total possible coins.

As more miners compete to unlock new blocks, proof-of-work problems become more difficult. Thus, the average time it takes the miners to find the right combination remains constant. This average time, referred to as block time, differs from currency to currency – 10 minutes for Bitcoin, 2.5 minutes for Litecoin, etc.

To mine or not to mine?

Anyone can join the network as a miner (this is true for most, but not all blockchains). However, the cost of energy for running a rig that would profitably mine reputable cryptocurrencies is huge. Back in the day, Bitcoin could be mined using a standard computer. Those days are long gone. Today, expensive specialized equipment is used to solve proof-of-work problems. These processors, called ASICs, are so good at mining that normal computers simply cannot compete.

Solving proof-of-work problems for profit requires significant investment in equipment and technical know-how, which may not be feasible for everyone. For individuals interested in acquiring cryptocurrency, one alternative is: use an exchange to buy cryptocurrency.

This webpage has been approved as a financial promotion by Bitstamp UK Limited which is registered with the UK’s Financial Conduct Authority. Please read the Risk Warning Statement before investing. Cryptoassets and cryptoasset services are not regulated by the Financial Conduct Authority. You are unlikely to be protected if something goes wrong. Your investment may go down as well as up. You may be liable to pay Capital Gains Tax on any profits you earn.

Ready to start your crypto journey?

Get started