Proof-of-Work

Proof-of-Work is commonly referred to today as a consensus protocol used to verify and add new transactions onto a blockchain. But before it was implemented on a blockchain, it was a means to protect computers against nefarious acts such as viral attacks to lock computers, as well as spam.

Where Proof-of-Work Came From

Initial concepts of Proof-of-Work had been in development for decades before it was ever implemented as a means to secure money. That idea came when Hal Finney adapted Proof-of-Work in 2004. His idea of a "reusable proof of work" was founded using a SHA-256 (Secure Hash Algorithm) algorithm.

Just five years later, in 2009, the Bitcoin network was created by Satoshi Nakamoto. Since then, it has been the most popular and most robust system used by any blockchain, and it’s what gives Bitcoin its dominance as secure digital money. Without Proof-of-Work, Bitcoin would not be as secure, nor as versatile. So how does it work?

How does it work?

To get the ball rolling, let’s suppose a transaction is placed to send 1BTC on the Bitcoin network. The first thing that happens is a random group of nodes (decentralized computers that verify the allocation of assets on blockchain) will begin to verify whether or not the user has the funds they wish to send at that address.

Once the nodes announce the address has the funds available to send, they mark the transaction as verified and announce it to the network. More nodes will continue to verify the transaction. When enough verified transactions accumulate they form a “block” which is run through the SHA-256 hashing function to create a random string of numbers. As that process continues, another set of computers comes into play.

Mining computers, or ASICs, must create a random hash that meets the random requirements of the SHA-256 function from the block. There are hundreds of thousands of mining machines competing to secure this hash and ‘find’ this block, but when they do a few things happen. The miner is rewarded with Bitcoin (the primary incentive to mine), the block is officially added to the blockchain so nodes and mining machines will update their blockchains to include the new block. This ensures every participant on the network holds the same data and can therefore verify future transactions appropriately.

The process requires lots of computing power, and is a delicate process as just one character in a hash can result in a drastically different result for a miner. But if you’re able to provide a hash that matches certain conditions of the network’s protocol (which is randomised), your block can then be published to the blockchain. This process is known as Proof-of-Work.

Pros and Cons

Proof-of-Work catches a lot of FUD (fear, uncertainty, and doubt), and a lot of backlash for the energy it consumes. Aside from the illogical jump required to connect energy consumption with irresponsible carbon footprints, the miscalculations around how much a PoW system requires are often posed as negative features of PoW.

The Ethereum network requires about [44.5TWh/year](https://www.makeuseof.com/bitcoin-vs-ethereum-which-uses-most-power/) which is indeed less energy consuming than the next biggest PoW platform, Bitcoin (Ethereum requires 1/4 of Bitcoin’s energy). In return for all that energy, you get one of the most secure blockchains ever created in Ethereum. For 177TWh/year in Bitcoin you get the most secure blockchain in the world.

Without Proof-of-Work it’s impossible to participate in a decentralised, permissionless, immutable, censorship-free financial system. This system provides verifiable truth to all participants, and protects against “double-spend”, a phenomenon by which someone tries to spend the same money in two places.

Also, many attempts to change Proof-of-Work have been undertaken due to the speed of the system. A new block is added about every 10 minutes for Bitcoin, whereas Ethereum accepts much more transactions per block. However, the danger in allowing too much throughput of transactions is that they become harder to verify.

Proof-of-Work with NFTs

Currently, the Ethereum blockchain runs on a Proof-of-Work system similar to Bitcoin’s. Since roughly 90% of NFTs are minted on and traded through Ethereum, it’s fair to say tons of NFTs have gone through the Proof-of-Work process.

Unfortunately though, Proof-of-Work on Ethereum can be expensive and slow. So a good workaround for the blockchain data storage issue is to use content identifiers from an IPFS, or Interplanetary File System. Storing a content identifier (CID) is much easier than storing an entire NFT on a blockchain and can only be done in conjunction with an IPFS. These storage systems act in the same way a decentralised blockchain operates, but is designed to handle larger amounts of data. IPFS differ, though, because they are able to divide large quantities of data into smaller chunks, verify them, and store them separately on a blockchain via PoW.

For example, when an NFT photo is stored on an IPFS, the hundreds or thousands of bits of data that make up the photo will be disseminated across the system and given individual CIDs for retrieval. Then when you wish to view your NFT, the Ethereum blockchain can be used to recall the combination of all the photo’s URIs, “unlocking” the NFT. The proof-of-Work system holds the NFT’s CID in place on the blockchain.

Does Fayre use PoW?

Fayre’s multi-chain availability extends to Ethereum users, which of course means NFTs minted on Fayre can be minted using, and protected by Proof-of-Work. While Ethereum uses PoW (for now), Polygon and BSC don’t use PoW. Instead, they rely on Proof-of-Stake, a relative to PoW.