Stated simply, Proof of Work is any system that requires computers to exert extra computational effort in order to complete a process or task. This extra computational effort results in a solution, which can then be presented and verified before the desired process or task is executed. Proof of Work— or just “PoW” for short— systems are designed to prevent spam attacks and Distributed Denial of Service (DDoS) attacks, among other things. That’s Proof of Work, in a nutshell.
If you’d like to get into the finer details of Proof of Work, then continue reading. This post will walk you through the history of Proof of Work, the benefits and disadvantages of Proof of Work systems, and a summary of how Proof of Work blockchains function.
A History Of Proof of Work Systems
While Satoshi Nakamoto, the anonymous individual(s) who founded Bitcoin, is often credited with inventing Proof of Work systems, they actually existed long before the advent of blockchain. Proof of Work systems have a long and little-known history.
The First Presentation of a Proof of Work System
Back in 1992, just as the internet, faxes, and email were coming into mainstream usage, spam messaging was already becoming a problem. Two academics, Cynthia Dwork and Moni Naor, recognized the problem and tried to solve it. The essay, “Pricing via Processing or Combatting Junk Mail,” presented a way to prevent spammers from sending out unsolicited mass messages to ordinary internet users:
“The main idea is for the mail system to require the sender to compute some moderately expensive, but not intractable, function of the message and some additional information. Such a function is called a pricing function.”
Although the term “Proof of Work” is never used in this particular essay, the ideas presented in it are the first description of a Proof of Work system. The notion that a moderately difficult computational problem will deter spammers and ensure that all (or at least most) completed processes are desirable is the essence of Proof of Work.
Later, in 1997, a member of the cypherpunk movement named Adam Back founded a protocol called HashCash. The original HashCash announcement— we might think of it as the HashCash whitepaper today— was sent out to the infamous cypherpunk email list on March 28, 1997.
Just as with the previous essay, the term “Proof of Work” was never used in Adam Back’s HashCash announcement. However, many of the ideas presented with the HashCash protocol evolved into what we understand to be a Proof of Work mechanism today. HashCash even included something called “Double Spending Protection,” a foundational concept in blockchain.
Moreover, Satoshi Nakomoto cited HashCash as an influence in Bitcoin, writing that in order “to implement a distributed timestamp server on a peer-to-peer basis, we will need to use a proof-of-work system similar to Adam Back’s Hashcash.” The connection is not just assumed but made explicit by the founder of Bitcoin themself.
The Term “Proof of Work” Is Coined
Two years after Adam Back published the HashCash whitepaper, yet another relevant academic essay was published. Markus Jakobsson and Ari Juels wrote a paper called “Proof of Work and Bread Pudding Protocols,” thus coining the term “proof of work.” Jakobsson and Juels state that a proof of work system is:
“a protocol in which a prover demonstrates to a verier that she has expended a certain level of computational effort in a specified interval of time. Although not defined as such or treated formally, proofs of work have been proposed as a mechanism for a number of security goals, including server access metering, construction of digital time capsules, and protection against spamming and other denial-of-service attacks.”
Bitcoin and Proof of Work
Finally, on or about October 31, 2008, Satoshi Nakamoto published the Bitcoin whitepaper. Nakamoto was clear that proof of work was a key element of the Bitcoin protocol:
“We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.”
While many believe Bitcoin was the first iteration of a Proof of Work system, it was not. Bitcoin is certainly the most prominent example of a Proof of Work protocol but it was not the first, as the previous three subsections make clear.
The main innovation Bitcoin offered was not a Proof of Work system itself, but rather turning a Proof of Work system into a competitive process called mining. More on this later.
Benefits of Proof of Work
As noted above, a Proof of Work system is one that forces computers to do a little extra work before a requested process is executed. The extra work results in a solution, which is then presented to other computer(s). The other computer(s) can easily verify that the solution is accurate and approve whatever action the original computer is requesting.
This is a key characteristic of a Proof of Work system: it must be somewhat difficult to find a solution but extremely easy to verify that a particular answer does, in fact, solve the problem. In this way, Proof of Work systems are similar to Merkle Trees. Once a hash is created, all other machines can verify that it is a true result with very little computational effort.
There are several major benefits to Proof of Work systems. First, they are an excellent way to deter spammers. If a moderate amount of work is required for each process (e.g. sending an email), then most spammers wouldn’t have enough computational power to send a huge number of unsolicited emails.
Or, in the case that a spammer did have enough computational power to send a huge number of emails, the financial costs of this processing power (i.e. buying the hardware and paying for the electricity) would likely exceed the profits of spamming to begin with. That’s how a Proof of Work system disincentivizes spamming and other forms of malicious behavior.
In addition, Proof of Work systems can be used to provide security to an entire network. This is the primary benefit for blockchains that use a Proof of Work consensus mechanism. If enough nodes (computers or dedicated mining machines) are competing to find a specific solution, then the computational power needed to overpower and manipulate a network becomes unattainable for any single bad actor or even a single group of bad actors.
Proof of Work In Blockchain
Imagine that there is a reward for being the first one to solve a specific mathematical problem. Suppose further that millions of computers are all competing to earn that reward. The first one to complete the problem gets the prize. Once a solution is found, the reward is distributed and a new problem is presented. All the machines begin competing to solve the new problem, and so on. In a very simplified way, this is how Proof of Work networks function.
Each “block” in a Proof of Work blockchain is really just a list of completed transactions (along with a few other bits of data). Each transaction is really just a transfer of data in a ledger from one address to another, something akin to: address ABC123 sends 0.5 BTC to address XYZ456.
In order for the network to complete a transfer of funds, the transaction must be confirmed and written into a block on the blockchain. A block is mined every time a miner finds a solution to a difficult math problem and broadcasts their solution to the rest of the network.
In other words, the miner solves the problem and proves their work to the other machines that were trying to solve the same problem. All the machines on the network verify the solution. If the solution is true, the miner who found it is given a reward. Then, a new problem is presented and the competition begins again. That’s how Proof of Work blockchains function.
The size of the reward for mining a block varies from blockchain to blockchain but it is always paid in the coin native to that particular blockchain. The size of the reward on a single blockchain may also change over time.
While the rewards may vary from blockchain to blockchain, the purpose is always the same: to incentivize individuals to use their computers to solve the difficult math problems required for blocks to be mined. If this incentive wasn’t in place, it’s unlikely that anyone would waste their computational resources (and thus electricity and money) on mining a blockchain. And with no one mining, transactions would never be processed and the blockchain would be useless.
Similarly, without a large network of computers competing to solve computational problems, a blockchain would have no security. Anyone with a sufficiently powerful computer would be able to manipulate the blockchain, erasing or altering transactions at will. This would make the currency worthless.
To sum it all up: blockchains need computers solving difficult mathematical problems in order for blocks to be mined and transactions to be completed. To incentivize people to use their computers to solve these problems, a reward is given each time a new block is mined. This increases the level of security of the blockchain and ensures that all transactions will be processed in a timely manner. This is the beauty of Proof of Work blockchains.
Disadvantages of Proof of Work Blockchains
There are two primary disadvantages to Proof of Work systems. The first is that they waste energy, which is bad for the environment. As computers perform extra computational work, additional electricity is used. This can add up to an extremely large amount of excess electricity consumption.
In fact, this is one of the most common criticisms of Bitcoin and of cryptocurrencies in general. A Dutch researcher named Alex de Vries published an essay in May 2018 that estimated Bitcoin mining consumes roughly 24 Terawatt hours of electricity per year— approximately the same amount of electricity as the entire nation of Ireland. Studies such as this have led to many criticisms for Proof of Work blockchains and led many to support Proof of Stake chains instead.
However, the simple statistic of how much energy the Bitcoin network consumes doesn’t tell the whole story. Environmentally speaking, Bitcoin mining isn’t as bad as you might think. A report on crypto mining released in November 2018 estimates that around 80% of the electricity used in mining is green energy.
The second major drawback to Proof of Work blockchains is about security. Proof of Work blockchains provide adequate security only if there is a huge network of miners competing for block rewards. If the network is small, the possibility remains that a hacker could gain a simple majority of the network’s computational power and stage what is known as a 51% attack.
In today’s circumstances, manipulating the Bitcoin blockchain is practically impossible. However, there are dozens of smaller Proof of Work blockchains that remain extremely vulnerable to 51% attacks.
In fact, many of these small Proof of Work chains can be successfully attacked for just several hundred dollars an hour on NiceHash, a website that allows users to rent hash power in order to mine cryptocurrencies. For more details, check out Crypto51, a website that lists in real time how much money it would cost to 51% attack every Proof of Work blockchain in existence.
While these two disadvantages of Proof of Work blockchains are serious concerns, Komodo’s Blockchain Security Service provides a solution to both.
With regard to the environmental concern, Komodo’s innovative delayed Proof of Work security mechanism recycles the incredible hash rate of the Bitcoin network to provide BTC-level security to all integrated blockchains. It leverages the gargantuan amount of electricity already being consumed to protect small Proof of Work blockchains.
As for the concern about 51% attacks and other types of blockchain manipulation, they are no longer an issue once a chain is secured with the power of the BTC network. A potential hacker would need to overpower both the KMD network and the BTC network at the same time in order to successfully attack a chain integrated to Komodo’s Blockchain Security Service.
Komodo’s Blockchain Security Service is available to any UTXO-based blockchain, including chains launched independently of Komodo Platform’s technology. Send an email to email@example.com for more information about this cutting-edge security service.
Proof of Work Blockchains Built With Komodo
Komodo is the world’s first blockchain platform with a multi-chain architecture. Other platforms are merely a single blockchain with the ability to support smart contracts. Komodo, on the other hand, gives every project a customizable, independent blockchain with the ability to support smart contracts, generate tokens, and build decentralized applications— all without needing to share infrastructure. This eliminates the problems of congestion that continue to render smart contract platforms unusable.
While Komodo’s blockchain is a Proof of Work chain, using the Equihash cryptographic hash function, independent blockchains launched with Komodo’s technology can be either Proof of Work or a unique combination of 50% Proof of Work and 50% Proof of Stake. This just one of the many new customizable parameters from which projects building with Komodo can choose.
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