Why Does Bitcoin Still Use Proof of Work?

If you have heard of Bitcoin then you have probably heard of the term proof of work. This revolutionary concept is essentially a consensus mechanism employed by Bitcoin that offers unmatched security while providing a more democratic governance protocol.

But it is not all sunshine and rainbows. With this security comes huge climate impacts and issues with scalability. In this article, I will be covering what proof of work is as well as why Bitcoin uses it. So without further ado, let’s jump right in.

What is proof of work?

Proof of work (PoW) is a consensus mechanism that is governed by a vast network of computers known as nodes. For new transactions to be added to the blockchain they need to solve complex puzzles.

In other words, each transaction has a specific hash. This is a complex string of text. With POW specialized nodes known as miners generate a target hash that matches this transaction hash.

The first miner to perform this task receives the block reward, this reward is denominated in Bitcoin. Therefore, this system fosters competition between miners in the network.

The likelihood of solving this puzzle is directly proportional to the computing power used. This is where the “work” comes from in “POW” as it is a very energy-intensive process.

Once confirmed by miners the transaction is then broadcast to the network and if the majority of nodes agree it’s valid then it is added as a permanent record on the blockchain.

The blockchain is a distributed ledger that contains an unalterable transaction history since inception.

Why does Bitcoin still use proof of work?

The main benefit of proof of work (PoW) is that the security is second to none. PoW makes it extremely hard for bad actors to manipulate transactions or take down the network.

This is because for transactions to be altered, malicious actors must hijack the consensus of the Bitcoin network by securing the majority of the computational power in what is known as a 51% attack.

This would cost billions of dollars. Ultimately, they would have to purchase expensive mining equipment and expend huge amounts of electricity. All in all, they would have to control over 51% of both the miners and the nodes in the network.

Not to mention, there is little incentive, as once hijacked the price of Bitcoin will collapse.

When it comes to taking down the network entirely this would require all nodes to be shut down. With over 10,000 nodes distributed across hundreds of countries, this is almost impossible.

Will proof of work go away?

Overall, there are two main criticisms of proof of work. Firstly, as it is extremely energy intensive it has a significant toll on the environment.

To put it into context, a single Bitcoin transaction uses over 2000 Kilowatt Hours worth of energy to complete, this equates to over 40 weeks of energy consumption for the average UK household. Moreover, when compared to Visa’s 148 kWh this is significantly higher.

With countries and the population, in general, becoming more environmentally conscious this can hinder adoption. Secondly, the network is not very scalable.

All in all, the Bitcoin network can only process 7 transactions per second. With several new cryptocurrencies such as Solana offering over 3000 transactions per second people may move to alternative blockchains.

That being said, these drawbacks are a byproduct of the security of the network. Therefore, if people value the unmatched security that proof of work offers over the disadvantages, then it will not go away.

if you want to view this article in a more visual format then please check out my video below:

Final thoughts

As you can see, proof of work is an innovative consensus mechanism that offers unmatched security. Although it has huge energy expenditure that has climate implications, this is a feature, not a bug.

Not to mention, as the world transitions to more renewable energy sources this will become less of an issue. Scalability will also improve over time as the technology develops. I hope you found this article useful and thanks for reading it.

Want to learn about the origin story of Bitcoin trading? Click here to read my previous article.