If you’re an active crypto trader, you must have thought, at one point or the other, about the security of your assets. How do you know that one day, the whole system will not become flawed? One of the ways to ensure the security of your assets is by the concept of proof of work. Proof of work is a mechanism that ensures that participants in a blockchain network perform transactions and reach agreements while ensuring the security of the network. This mechanism ensures that you can perform crypto transactions without the influence of centralized agencies. Proof of work is employed by many cryptocurrencies but our primary focus is on its functions in the Bitcoin network.
The concept behind proof of work
It may surprise you to know that the primary purpose for proof of work was not for security. Instead, it was created to solve the problem of spam emails. However, this purpose has been channeled to aid the development of Bitcoin and other cryptocurrencies. As you know, Bitcoin and other cryptocurrencies all depend on the blockchain network. Essentially, blockchain contains records of all crypto transactions. That way, everyone on the network has equal rights in the market.
However, there’ll always be some traders that try to play smart and tamper with the network. The best way to discover any foul play in the system is through hashes, long strings of numbers that serve as proof of work.
Why Do You Need Proof of Work?
Proof of work, popularly called PoW, is an algorithm that secures crypto transactions. Let’s clarify; when you make a crypto trade, it doesn’t always go through without checks. The transaction may be fast, but there is a validation process. This validation process happens the moment you get added to the blockchain. Like we have explained, blockchain is that platform that records all transactions.
On that blockchain, proof of work is the standard that checks any dubious transaction. It is that factor that makes sure all transactions are legitimate. So as long as you’re playing by the rules, proof of work will work in your favor. Mostly, if you are just a bitcoin trader, you may not necessarily understand the art of proof of work, but if you’re a Bitcoin miner, you’ll understand well.
What’s the importance of Proof of work?
Proof of work may be just a security measure on the blockchain, but it has several importance. Some of the benefits of proof of work include;
Double spending is a primary issue that proof of work looks to solve. As the name implies, double spending means a miner wants to spend a single currency in more than one transaction. Naturally, it’s easy for anyone who has the skills to copy a digital transaction. Once this happens, that currency will experience inflation, which will reduce the value of the coin. Proof of work is that block that stands to defend each transaction of every miner. With proof of work, it’s daunting to copy a transaction to double spend.
Peer to Peer Transaction
The trust and security that proof of work brings to the cryptocurrency market are why you can have a transaction without a witness. Since you know that the transaction is secure, you can trust the process.
Bitcoin mining is an expensive but lucrative arm of cryptocurrency. Proof of work requires enormous energy, which gives more opportunities for Bitcoin miners.
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