Altcoins Guides


What is Audius?

What is Internet Computer?

What is Elrond?

What is VeChain?

What is Ethereum Classic?

What is Avalanche?

What is Brave’s Basic Attention Token?

What is Flow – the developer-friendly blockchain?

What is Chainlink and why does it matter in the crypto world?

What is the DAI stablecoin?

What is THORChain?

What is Tron?

What is Axie Infinity?

What is the FTX Token?

What is Klaytn and how does it work?

What is NEAR Protocol?

What is Polygon?

What is a non-fungible token (NFT)?

 What is Kusama – a canary network for Polkadot experiments? 

What is Zilliqa?

What is OMG network?

What is Terra?

What is Algorand?

What is Graph Protocol?

What is HIVE blockchain?

An introduction to the IOTA protocol

Five XRP wallets you should consider using

What is NEO cryptocurrency?

Three reasons why blockchain games are on the rise

What is the USD coin?

TrueUSD: Can it be trusted?

What is Skycoin?

Tezos for beginners

Bitcoin vs. Altcoins: The differences you should know

An introduction to Tether

The beginner’s guide to stablecoins

What is Dash cryptocurrency?

What is Cardano?

A beginner’s guide to blockchain

What is Litecoin?

What is Stellar cryptocurrency?

A beginner’s guide on how to mine Ethereum

A beginner’s guide to mining new altcoins

What is EOS?

What is Ripple?

Bitcoin Cash (BCH) for beginners

Ethereum (ETH) for beginners

Cryptocurrency terms for beginners

What is cryptocurrency?

A brief history of Ethereum

What is cryptocurrency mining?

The use of blockchain technology in digital advertising

A guide to the Ripple product suite

The top five privacy cryptocurrencies

Stablecoins: what are the risks and benefits?

The best GPUs for cryptocurrency mining

What are the best strategies for mining cryptocurrency?

A beginner’s guide to data mining and cryptographic hash functions

Understanding tokenomics

How to mine for cryptocurrencies

Why does decentralisation of cryptocurrencies matter?

What is a Mining Pool?

What is Hash Rate?

What is a smart contract?

What is Proof of Work?

How network nodes are used in cryptocurrency

Four projects leading the way in database sharding

Explore other guides


What is Proof of Work?

Discover from what Proof of Work (PoW) is. how it's used, and how it validates transactions that occur in cryptocurrency networks

Proof of Work is a consensus protocol used by cryptocurrencies, including Bitcoin, to validate the transactions that occur in their networks. These networks are usually built on blockchain technology.  A blockchain is a decentralised, trusted ledger of transactions which occur within a network.

Transactions are validated by a network of separately-owned computers using a cryptographic protocol to assess the accuracy of the data contained on the ledger. The real innovation behind Bitcoin and some other cryptocurrencies lies in the integration of three separate technologies: a decentralised ledger, cryptographic keys, and the Proof of Work

Proof of Work explained

The Proof of Work protocol is used during the mining process. During this process, nodes compete among themselves to make sure that the information contained in each block of transactions is accurate. For these efforts, they receive a reward.

If you are paid $10 for a product, you recognise the value of that currency, and you trust it because it’s backed by the US Federal Reserve. These institutions act as guarantors of the value of the currencies they print. The Proof of Work protocol does the same for cryptocurrencies. It ensures the data contained in the blockchain is trustworthy by giving the network nodes an incentive to validate accurate data and reject false information.

All of this happens in spite of the fact there is no central institution backing it. When used in the context of a blockchain, it allows for trust between unknown parties because they share a confidence in the veracity of the consensus protocol.

How does Proof of Work actually work?

If I send you one Bitcoin, that transaction is registered on a block with other transactions with a timestamp and communicated to the decentralised network where different machines, or miners, employ their computing power to validate it (along with the rest of the block).

The network nodes validate the information by competing among themselves to find the solution to increasingly more complex mathematical riddles. They present solutions on a trial-and-error basis until one finds the correct number and communicates it to the remaining machines. When a majority of nodes agree that one miner has solved the problem, a consensus is achieved.

For this work, the miner receives a reward in the form of transaction fees and the block of transactions is added to the decentralised, shared ledger where it becomes an immutable part of the blockchain. When these different nodes compete until they reach a solution on which the whole network agrees, they use up a lot of computational power, energy, and time.

As the problems increase in complexity, so do these costs, which provides a further incentive not to cheat the system. Why would you go through all the effort and cost of investing in powerful computers to then miss out on the rewards?

The proof of work protocol that allows for this validation is brilliant in its inception because it relies on human self-interest to guarantee the integrity of the blockchain. Proof of Work exists so that transactions can’t be falsified.

Why does Proof of Work matter?

Proof of Work is essential because it allows for trust in a trustless environment. When miners agree to compete for the reward for getting the next block right, they implicitly agree to abide by the rules of that community of nodes, instead manipulating the blockchain for their own purposes.

By increasing the difficulty of verifying each block, this protocol ensures excessive mining doesn’t take place. It preserves the supply of cryptocurrency while incentivising miners to keep the network running.

Since it uses limited resources like time, computational strength and energy, Proof of Work isn’t infinitely scalable.  This often causes controversy. 

An alternative to tackle the resource inefficiencies inherent to this protocol is the Proof of Stake (PoS) consensus mechanism. In this mechanism, the network values seniority and investment in the cryptocurrency over computational power. Since every time a new block is created the miner has to trade in old units of that crypto for new ones, that miner will be in a weaker position to create the next block.

This ensures a continual turnover in who gets to mine each block while also incentivising the trustworthiness of that crypto by making the largest holders an integral part of the process.

Want to know more about blockchain consensus algorithms? Download this definitive guide.



Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.