How bitcoin mining works. What is the PoW algorithm in simple words

How bitcoin mining works. What is the PoW algorithm in simple words

Author: Robert Strickland

How bitcoin mining works. What is the PoW algorithm in simple words

We tell you how the first cryptocurrency mining algorithm is designed, what its advantages and disadvantages are, and what alternatives exist


Cryptocurrency mining is a process that involves solving complex mathematical problems to validate transactions and create new digital coins. One of the most widely used mining algorithms is Proof of Work (PoW), which provides a secure and decentralized transaction validation mechanism for the bitcoin network or other PoW-based cryptocurrencies. This article will look at how the PoW algorithm is structured, its advantages and disadvantages, and some popular alternatives, including its various variations used in coins such as Raven and Ergo.


What is the Proof of Work (PoW) algorithm in simple terms

The Proof of Work (PoW) algorithm is a consensus mechanism used in cryptocurrency mining. Simply put, it requires miners to solve complex mathematical problems to verify and write transactions to the blockchain. Each block of transactions contains a unique problem, and the miner who solves it first gets to add the block to the overall chain and be rewarded with new coins. The complexity of the task increases as more miners participate in the network.


Benefits of PoW

One of the advantages of the PoW algorithm is that it protects the blockchain from DDoS attacks that try to overload the network with fake traffic. In addition, the size of the mining reward in the form of commissions is relatively small, which contributes to a fair distribution of coins among miners. The reward for a found block is halved about once every four years, a process called "halving" or "halving.


Disadvantages and disadvantages of PoW

Although PoW is a widely used and secure algorithm, it has some disadvantages worth knowing about.


51% Attack. A single entity controlling more than 50% of the network's processing power can take control of the blockchain, making it vulnerable to attack.

Limitations on GPUs. The PoW algorithm is inefficient for mining with video cards and requires specialized equipment, which can limit the range of people willing to join cryptocurrency mining.

Usefulness of calculation results. The PoW algorithm uses a significant amount of energy and processing power to solve problems that have no practical application outside of mining.

Large mining farms. Large mining farms with significant computing power have a disproportionate advantage in mining and can further monopolize revenue generation.

Proof-of-Work (PoW) mining

Miners use computing power to solve a mathematical problem related to each block of transactions. This problem can only be solved by trying different inputs until the right value is found. The first miner to solve the problem transmits the solution to the network, and the other miners check it before adding the block to the chain.


To add a block to a PoW blockchain, a miner must be the first to find a valid hash of that block, using the computing resources of his or her device to do so. Machines built specifically for this function (ASIC) are capable of calculating trillions of unique hashes every second.


The chances of adding a block as a single miner are determined by the number of hashes that the miner's device calculates per second, relative to the total number of hashes that all the machines in the network calculate each second. Typically, blocks are mined by large pools combining the power of thousands of participating user devices. The largest of them are Foundry, AntPool, and Binance's own pool.


PoW alternatives

There are several other cryptocurrency algorithms that have also gained popularity due to their potential benefits over PoW.


Proof of Stake (PoS). In this algorithm, a miner's chance of confirming a block depends on the number of coins he owns. This algorithm eliminates the need for the powerful computing resources required for PoW, making it more energy efficient. Examples are Ethereum (ETH), Cardano (ADA) and Binance Coin (BNB).

Directed Acyclic Graph (DAG). This algorithm is used in IOTA (MIOTA) and allows transactions to be confirmed without the need for miners to solve complex mathematical problems. It is based on the Tangle structure, which is a network of individual transactions that are confirmed by subsequent transactions.

Delegated Proof of Stake (DPoS). This is similar to PoS, but instead of all coin holders participating in block confirmation, they elect delegates to perform the task. Examples of cryptocurrencies using this algorithm are EOS (EOS) and Tron (TRX).


Proof of Capacity (PoC). This algorithm requires miners to have free hard disk space, which they use to solve mathematical equations. Chia (XCH) is a cryptocurrency that uses this algorithm and strives to be more environmentally friendly than PoW-based cryptocurrencies.

There are other variations of the PoW algorithm, such as X16R, which is used by Ravencoin, or Autolykos in Ergo. They are also designed to remove the limitations of the traditional PoW algorithm and increase mining efficiency.


Proof of Work is a fundamental algorithm that is widely used to protect the blockchain, allowing miners to solve complex mathematical problems and earn rewards in cryptocurrency. Despite its advantages, chief among which is its years of proven reliability, it also has disadvantages, including the possibility of 51% attacks and the concentration of power in the hands of large mining farms.


As technology evolves, we can expect to see further innovations and alternatives to PoW that have different advantages and disadvantages. Ultimately, the choice of algorithm will depend on many factors, including the specific needs and goals of the network and its users

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