What is PoS (Proof of Work) – We analyze what PW mining is – the key features, popular cryptocurrencies, extracted using the PoW consensus algorithm, advantages, and disadvantages of the protocol.
PoW mining is the principle of cryptocurrency mining, requiring the user to perform computational operations of a certain complexity. For the successful solution of the task, the miner receives a reward in the form of a certain amount of cryptocurrency. Since the calculations are carried out by special equipment, the income of the “miner” directly depends on the power of his equipment.
The abbreviation PoW stands for Proof-of-Work – proof of the work done. Speaking as simply as possible, this is one of the principles of cryptographic protection of networks, requiring a person to perform some lengthy operation, followed by checking its results. A special feature of the PoW protocol is the asymmetry of time – a lot more time is spent on finding a solution than on checking it. In peer-to-peer systems based on the Proof-of-Work algorithm, everything works according to the following fundamental principles:
Curiously, the idea of the PoW consensus protocol originated long before the appearance of the first cryptocurrency. Back in 1993, it was proposed to form a certain algorithm that requires the computation of a complex but feasible function, which would give access to a specific resource and at the same time protect it from abuse. For the first time, this algorithm was put into practice in 1997, when Hashcash was launched on the initiative of Adam Beck.
The Hashcash project was email oriented. The purpose of its implementation was to protect the platform from spam attacks. The essence of the system is quite simple:
System Hashcash marked the beginning of the fight against spammers. The latter (for receiving benefits) should send a huge number of letters with minimal time costs. The need to select a unique label made such a process resource-intensive and unprofitable. Moreover, special filters appeared that separate useful emails from spam mailings.
Despite the fact that the problem of spammers was not fully resolved, the Hashcash project became the foundation for the development of the PoW protocol, which was introduced into the Bitcoin system in 2009.
As is known, the Bitcoin network (as well as other cryptocurrencies) is a decentralized payment system operating on the basis of blockchain technology. In order for the platform to perform its primary functions (transfer coins from one user to another), the blockchain chain must be systematically replenished with new blocks of transactions. Miners are responsible
for generating blocks. Their equipment selects a unique hash of the new network element (64-digit number). This operation is performed by sequential brute force, so the higher the power of the equipment, the more calculations it can spend in a given period of time (for example, it takes about 10 minutes to form a block in the Bitcoins network).
After creating a new blockchain element, miners who participated in the process are rewarded with a certain amount of cryptomonet. The profitability of a miner is determined by his contribution to the work. For example, you can take the same Bitcoin:
This is a rather crude example, but it allows you to understand the fundamental essence of PoW mining. Moreover, the role of the “miners” becomes clear:
It should be remembered that PoW is a consensus building protocol that can work on different encryption algorithms. Today, based on this protocol, such digital assets are mined:
Separately, it should be said that so far, ordinary Ethereum is mined on the basis of the PoW protocol. However, in 2019, a transition to the PoS platform should take place, which will change the mining principle of this popular asset.
Cryptocurrency mining in this way requires several steps:
Globally, PW mining differs from POS mining by the criterion determining profitability:
However, there are a number of other parameters that distinguish these algorithms, and sites that practice the concept of PoS are in a better situation. Judge for yourself:
At the same time, we should not forget about such a moment as fraud. It is much easier for attackers to implement their schemes with currencies mined at PoS. Assume:
As a result, investors find themselves with nobody needs coins, and money flies to the wind.
With coins mined at PoW, this will not work. It is necessary to choose the optimal encryption algorithm, give the system functional highlights, develop software for the site, attract new users who will not purchase, but mine the cryptoactive. Even if, in the long run, the project turns out to earn and then “drain” it, the organizer will have to spend a lot of time and invest in the site itself. You understand, it is unprofitable for intruders. It is much easier for them to hit the bank in a short time and disappear. From this it follows that new projects on PoV are still safer.
The main flaw of the protocol under consideration is the probability of “Attack 51%” The bottom line is that if one person or group of users concentrates more than half of the network hashrate, they will be able to confirm only their blocks, completely ignoring the elements created by other participants. Thus, the holders of the control power will take away all the emitted coins and will be able to block transactions. Moreover, attackers can rewrite the history of the creation of blockchain elements. As a result, their chain will catch up and overtake the original blockchain and become valid. This will lead to the loss of coins stored in the wallets of thousands of people.
It must be said that in networks operating on PoW, there is a high probability of double spending – retransmission of the same coins. This type of attack has 2 types:
Of all the flaws, the most likely is an attack of 51% (considering how much power is currently concentrated in China). The tricks with double-spending, in fact, can be carried out by 1 person, but it is unlikely that those who have enough money for expensive equipment will be exchanged for these fraudulent schemes (especially not having an absolute guarantee of success).
Taking into account all the above, we can identify such strengths and weaknesses of the protocol under consideration:
Benefits | disadvantages |
Provides good protection against DoS attacks. | Requires the purchase of expensive equipment and arrangement of premises for it. |
Large coin holders who managed to mine them at the dawn of the formation of cryptocurrency, can not affect the production, because everything determines the power of the equipment. | Mining equipment consumes a lot of electricity, payment of which slows down recoupment and reduces overall profit. |
Conducting some fraudulent schemes is possible, but it is costly. There is no guarantee of success. Therefore, the probability of such manipulations is quite low. | As a rule, the complexity of the extraction of cryptomonet is growing, so the current capacity of the acquired equipment becomes irrelevant over time. In case of a sharp jump, the equipment can become useless very quickly, which means a waste of money. |
Today, the PoW mined cryptocurrency, which has a number of years. During this time, they managed to prove their reliability and attractiveness for investors. This means that the probability of their collapse is less high than in the case of young promising assets at PoS. | The collapse of cryptocurrencies with PoW mining is more painful, as it initially requires considerable cash infusions. |
In all cryptocurrencies, the unit reward decreases over time. Sooner or later the moment will come when mining will be unprofitable at all. | |
Many cryptocurrencies on the PoW protocol already today have an attractive price. Thus, with proper investment you can immediately get a good income, and not spend money on the future. | The protocol has a number of serious systemic flaws: attack 51%, double spending. To solve these problems within the algorithm itself is almost impossible. As a rule, such attempts lead to the emergence of new technologies (as, in fact, PoS was formed) or hybrid systems (for example, Proof of Research at the BOINC site). |
As you can see, PoW mining is a very profitable method of extracting cryptoactive assets (considering their current price), but it is not for everyone, as it requires serious cash infusions. Moreover, the protocol is not devoid of other flaws, forcing potential crypto users to give preference to cheaper and promising coins for PoS. But even today, on the basis of this technology, inexpensive Coins are being produced that can shoot in the future (for example, Ethereum Classic), so PoW mining can still be used as a method of accumulation for the future. The main thing is to choose the right prospective cryptocurrency.
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