In any centralized mechanism, a control tower of administration to keep the system running accordingly is imperative, the central authority that keeps hold of authentic documents. Blockchains that operate under a decentralized and self-regulating system do not have that luxury but instead involve the agreeing participation of thousands upon thousands of nodes (users) to verify and authenticate every transaction on the blockchain. For this to happen, a consensus mechanism must be in place to regulate the blockchain network.
Proof of Work is a consensus mechanism that brings users to an agreement on how the system operates, such as the order of transactions and account balances. It prevents the double-spending by users of their digital coins and the difficulty of launching a 51% attack. PoW determines mining regulations and the degree of difficulty miners have to undergo. In fact, the ‘work’ referred to in Proof of Work is ‘mining’itself, which is the act of creating qualified blocks into the chain. The more work or mining is done, the more block numbers increase, and the longer the chain becomes, the more the chain is secured.
Aside from PoW making a network a leaderless protocol, it specifically addresses the issue of double-spending, which is hard given that no system leader is taking charge. If it is not solved and remains a problem, users who double-spend can inflate the whole coin or token supply, thereby devaluing all coins and rendering them worthless. Online digital transactions are threatened by this malice; that is why the necessity of a PoW implementation can make double-spending an exceedingly difficult thing to do.
Cash does not have this issue, but digital money does. The physical fiat cannot be used to pay for a product or service twice, unlike digital currency, which is data and can be copy-pasted and sent to many different sites. Double-spending can become a problem for digital currencies when that same data is spent over and over.
Two proposals are hereby endorsed to address the issue of double-spending.
1. Centralized (Third Party)
The inherent risk of digital currency transactions can be mitigated via the deployment of a trusted central clearing third party. These are entities such as banks or financial institutions that verify and clear the transaction between two parties by taking on counterparty credit risks. This method can prove to be too costly as third parties need to be financially maintained.
2. Decentralized (Blockchain)
Most digital currencies integrate consensus mechanisms into their network systems to act as digital third parties, thereby regulating the verification of transactions with utmost certainty. For the Proof-of-Work algorithm, this consensus mechanism requires each node to verify a transaction. It utilizes the distributed ledger technology (DLT) for an uninterrupted sequential verification of transactions lumped into blocks and chained together via timestamping. As PoW by itself already consumes a huge amount of electricity, so much more will be needed to reverse and eliminate timestamped blocks to even commence double-spending. With confirmed blocks added to the chain at an approximate rate of 1 block per 10 minutes, and with transactions per block as of March 2021 at 2,218, this fraudulent act can end up as an exercise in futility.
Proof of Work rewards good behavior, and any attempt to cheat is just a waste of time, energy, and money, as the network automatically rejects invalid transactions. Miners cannot but act accordingly to maximize their revenues. So, this consensus mechanism continues to enjoy immense popularity, especially in cryptocurrencies like Bitcoin that relies on mining activities to protect the integrity of the system.
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