If you are interested in Cryptocurrensy, most of you have seen the words like “PoW” and ”PoS”. However, those PoW or PoS seems complicated, many of you might not understand well.
In fact, both PoW and PoS are not difficult to understand. And you should know those words to understand Cryptocurrency and make transaction. Here, I will explain about PoW in a very simple way so that everybody can understand. I will tell you some tips about PoS, but this article is for those who want to learn about PoW.
The Ideas You should Know to Understand PoW
To put it simply, PoW is a kind of “mining system” to issue Cryptocurrency. You should know the ideas below to understand PoW.
・What is Blockchain?
・Consistency of Blockchain
・What is Mining?
What is Blockchain?
Cryptocurrency is based on Blockchain technology. Legal currency like Japanese Yen has a controller, Bank of Japan. On the other hand, Cryptocurrency doesn’t have a controller. But if there’s no controller, how does it keep transaction consistency?
Blockchain is the solution. Blockchain is a database of all transaction history. Some transaction history is put in a “Block”, and those blocks are joined in a “Chain” in chronological order. That’s why it is called “Blockchain”.
Consistency of Blockchain
Well, no controller means nobody manages the data recorded in Blockchain. All data in Blockchain such as “when” and “how much” remitted is disclosed (anonymously), and anybody can see it.
If there is a central controller, he/she manages the transaction data, and protects it from leaking or falsification. But Cryptocurrency doesn’t have a controller, and furthermore the database of all transaction record, Blockchain is disclosed.
Because of those, there should be some people who think “You can illegally transact if you falsify the data of Blockchain” or “It can be stolen”. However, Blockchain is designed to keep consistency of transactions without falsification. Each data is distributed in each block.
Here I omit a detailed explanation, but suppose that there is a transaction record of A, B, C in chronological order. In this case, B contains a part of A’s record, and C contains a part of B’s record (including A). Of course A contains the data prior to A.
Then more and more new blocks are connected to C. In other words, if somebody tries to falsify A’s record, he/she also has to falsify all the data after A, which means falsification is impossible substantially.
Even if you create an evil block and branch as a transaction record different from the qualified Blockchain, Blockchain gives priority to the “longer (with more blocks)” chain. So it means the qualified Blockchain which connects more and more blocks will be prioritized.
What is Mining?
With no controller, who does the calculation processing described above? Actually, anybody can do it. However, you need a computer to do this calculation, and it takes a huge amount of electric power, nobody does it if it’s free.
So it has a system that “the first one who finishes the calculation process gets the Cryptocurrency”, which is called mining. For example, the first person who finishes the calculation process of Bitcoin Blockchain will get Bitcoin.
What is PoW?
Now you understand how Cryptocurrency built upon Blockchain, and why falsification of Blockchain is impossible.
Next I will explain about PoW itself. PoW stands for “Proof of Work”. This takes so much work, which is a key point of PoW.
What are the features of PoW?
The essence of PoW is “to protect transaction record of Blockchain from falsification”. As I mentioned above, the transaction record of Cryptocurrency will be embedded in Blockchain by calculation processing. A transaction will be confirmed and gain approval only after calculation processing finishes.
However, the calculation processing needs “calculation of Hash value”, which is actually easy to get the answer. But it increases the risk of falsification if “calculation of Hash value” is easy and anybody can get the answer.
PoW is a system that makes “calculation of Hash value more complicated and it needs computer power to solve it.”
In a precise sense, the calculation is not complicated, but “it needs huge amount of calculations and hard to finish”. Making it more difficult to get the answer means to increase the difficulty of falsification, which leads to prevent falsification.
Mining is More Profitable
Suppose a giant company creates a lot of bases and does mining (calculate processing). Ultimately, if the company grew to a scale of 51% of minors (mining people), that company could lead to create an evil Blockchain.
Because Blockchain gives priority to “longer (more blocks)” chain, it is possible to make it longer than a qualified Blockchain if it has 51% of minors. However, since mining requires enormous calculation processing, falsification requires enormous machine power and electric power.
Therefore, even a dishonest company considers that you can get more Cryptocurrency by honest mining. Thus, by increasing the amount of calculations with PoW, the idea that cheating is no use will be spread.
Mining Method Other than PoW
Well, lastly I will explain a little about PoS, the other mining method than PoW. Please note that it can be a disadvantage of PoW. PoS stands for “Proof of stake”, which is the system that difficulty of mining will vary depending on “the stockpile of the coin” or “holding period of the coin”.
With PoW, “the fastest person who did calculation processing” will be the successful minor. However, it consumes enormous electricity, and the owner of higher performance computer has advantage.
On the other hand, with PoS, mining would be easier if you have more coin in a longer period, it isn’t related to “electric power” or “high performance computers”.
In the case of PoS, if you hold more coins, you’ll get advantage. So there could be disadvantage of low fluidity because more people want to keep holding it. Therefore, there is a difference whether PoW is adopted or PoS is adopted for each Cryptocurrency.
Have you understood the system of PoW? It’s not so difficult, it’s just a “Mining System”. And please note that the essence of PoW is “to prevent falsification”. It is one of the selecting criteria to choose a Cryptocurrency based on whether it employs PoW or PoS.