What is PoW (Proof of Work)?

Proof of Work (PoW) is akin to real-life certifications like diplomas or driver’s licenses, where validation is achieved through examination (e.g., passing relevant tests). In the cryptographic world, PoW serves as the foundational consensus model for blockchain networks, setting the standard for nodes to reach consensus. This model confirms transactions and generates new blocks in the blockchain, establishing an incentive mechanism that rewards the nodes that successfully generate blocks.

The Proposal of PoW

The academic research related to PoW began in the early 1990s. In 1993, American computer scientist and Harvard University professor Cynthia Dwork proposed the concept of PoW to address spam email issues. In 1997, Adam Back invented the HashCash technology, applying the PoW mechanism to counteract denial-of-service attacks and spam email abuse. This required each email sender to perform a small amount of hash computation, intentionally causing a brief delay.
HashCash technology was later widely used for spam filtering and implemented by Microsoft in products like Hotmail, Exchange, and Outlook. In 2008, Satoshi Nakamoto applied the PoW concept to blockchain consensus in the seminal paper “Bitcoin: A Peer-to-Peer Electronic Cash System,” introducing the PoW consensus algorithm for the Bitcoin system.

Principle

The PoW consensus algorithm is based on hash functions. For a given input string s, the hash function H(s) produces a fixed-length output, and the computation of H(s) is efficient. The hash functions used in blockchain systems like Bitcoin and Ethereum must meet the following three criteria:

1. Collision resistance: It should be improbable for two different inputs to produce the same hash output.
2. Irreversibility: Given a hash output H(s), it should be computationally infeasible to reverse-engineer the input sss.
3. Unpredictability: Apart from brute-force methods, no other method should be able to produce an input that hashes to a specific target value.

How It Works

The PoW consensus algorithm follows these steps:

1. Setting the difficulty level: The system specifies a global difficulty value, which determines the required hash computation result for the next block. Generally, the hash value must be less than a certain threshold. As the network scales, the difficulty level increases, and the system periodically adjusts the difficulty.
2. Packaging transactions: Nodes collect multiple transaction messages and package them into the body of a new block.
3. Assembling the block header: Nodes assemble the block header, which typically includes the hash value of the previous block, the hash value of the transactions in the new block, the current difficulty value, a timestamp, and a random nonce value.
4. Hash computation: Nodes use the specified hash algorithm (e.g., double SHA-256 in Bitcoin) to compute the hash of the block header. If the hash does not meet the difficulty requirements, nodes modify the nonce and recompute the hash. The node that successfully computes a hash meeting the difficulty requirements broadcasts the new block to the network.
   
5. Verification and acceptance: Nodes receiving the broadcast block verify its validity (e.g., by double SHA-256 hashing the block header in Bitcoin). If the verification is successful, they accept the new block and add it to their local copy of the distributed ledger.
6. Competition for the next block: Nodes begin competing for the right to add the next block.
   In the PoW algorithm, only the node that first computes a hash meeting the difficulty requirements gains the right to add the new block to the distributed ledger. Other nodes then replicate the new block to maintain consistency across the distributed ledger.

Limitations

The PoW consensus algorithm relies on computational power to allocate the right to record transactions. As the scale of blockchain networks grows, this results in significant wastage of computational resources and electricity. In 2020, the Bitcoin network consumed 134.89 billion kilowatt-hours, equivalent to the annual electricity consumption of a province. This high energy consumption is a major limitation of PoW.
Moreover, the PoW consensus algorithm’s lengthy computation time results in prolonged wait times for gaining recording rights, thus extending transaction confirmation cycles and reducing block generation efficiency. For instance, Bitcoin generates a block approximately every 10 minutes, limiting its transactions per second (TPS) and highlighting the efficiency constraints of the PoW consensus algorithm.