1. Proof of Work

The puzzle that a miner solves during the block creation is called Proof of Work (PoW). PoW is the process of a miner solving a hard mathematical puzzle that spends computational power but can be verified quickly. The difficulty of this puzzle adjusts depending on the collective power all of the miners are consuming. The miners compete against each other in solving these complex computational puzzles. The chance of a miner solving the problem is proportional to the power they consume in relation to the power being consumed within the network. Once a miner finds the solution to a new block, they can broadcast that block to the network. All other miners will then verify that the solution is correct and the block will likely be confirmed. A more comprehensive explanation can be found here.

Examples of blockchains using PoW

Bitcoin

Being the original, largest and most famous of all PoW blockchains. Using PoW, Bitcoin consumes a large amount of power to secure the network (estimated at around 200 million kilowatt-hours per day at the time of writing). The power is used to secure the network while also adding value to the underlying asset — Bitcoin. This is a double-edged sword, while it makes it very costly to perform an attack on the network, it’s consumption of power is as much as some small countries and by some is considered a poor use of energy.

Ethereum

Being the second-largest blockchain by market cap at this time, Ethereum is another example of a PoW blockchain. The present state of Ethereum as a blockchain is similar to Bitcoin but also introduces the concept of smart contracts. Ethereum adopted the same PoW consensus as Bitcoin because at the time of inception it was the gold standard in consensus mechanisms. The Ethereum Foundation has since acknowledged some of the downfalls of PoW and is actively researching and working to implement a PoS system shortly.

Benefits of Proof of Work

The main benefit is the strength it provides against attack. The bad actor must have a lot of resources (money/compute power) to try and attack the network. Secondly, it is hard for spammers to spam the network with useless transactions. The costs for a potential spammer to send the multiple transactions would be less than the potential gains they would receive. Lastly, It is a tried and tested method. Overall since its beginnings with Bitcoin in 2008, it has performed exactly as it is intended, preventing attacks and providing security, the most important factor in a blockchain.

Downfalls of Proof of Work

As discussed previously the biggest downfall in a PoW system is the inefficient use of a somewhat finite resource -energy. This is due to the way we generate electricity at present. Some potential methods of rectifying this are to generate power from renewable resources to mine the underlying asset. There are lots of mining companies researching this and implementing different methods including solar or hydropower mining farms. Find a great article on some companies using these methods here