LeoGlossary: Proof-of-Work (PoW)

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LeoFinance
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A consensus mechanism where miners have to prove they did the work to solve the 64 character hash required to add a block. This is a system that relies solely on computational and processing power.

One criticism of the PoW consensus is the amount of energy that is utilized. Many feel this is a negative. Proponents claim that cryptocurrency mining is helping to push the adoption of renewable energy. Miners biggest variable cost is energy so it is in their best interest to reduce that as much as possible.

Nevertheless, many governments have moved to ban cryptocurrency mining. Energy usage is just one of the reasons they use to validate this action.

Bitcoin is the most recognized Proof-of-Work blockchain.

This is the protocol that Satoshi Nakamoto spelled out in the Bitcoin White Paper.

Proponents claim that Proof-of-Work is secure as compared to the other consensus mechanisms out there. The problem is the scalability. Most PoW system are only able to handle a few transactions per second. This is evidenced by Bitcoin's 8 transactions-per-second.

Another issue is the cost. When the network gets busy, transaction fees can skyrocket. This is something that makes many users seek out alternative chains.

The final challenge is the fact that smart contract capabilities are not generally present. Since Ethereum switched to Proof-of-Stake, blockchains such as Bitcoin and Litecoin are basically ledgers for financial transactions. There is no other data contained on-chain.

We also see the elimination of any base layer DeFi. This all have to be developed on the second layer.

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