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Proof of Work

In cryptocurrency terms, the term proof of work refers to a system in which transactions are processed based on computing power.

Bitcoin was the first blockchain to use the proof of work model. In a process called mining, participants in the network provide their computing power to process transactions and secure the network. They are rewarded with newly-generated bitcoin for each successfully-processed transaction.

A cryptocurrency transaction takes place when a new block is added to a blockchain. For this to happen, a computer must solve a cryptographic problem.

When many computers compete to process transactions, a proof of work algorithm automatically increases the complexity of cryptographic problems which need to be solved. The computer with the greatest computing power will solve the problem first. 

This ensures that only one computer can solve the problem so that only one block will be created per transaction. In this way, the proof of work algorithm prevents duplicate transactions.

The advantage of the proof of work model is that it is relatively simple. Since it was first introduced with the bitcoin blockchain, it has proven to work reliably.

However, scalability has been a problem for proof of work models. The larger a proof of work network grows, the more complex cryptographic problems become, and the more computing power is required to solve them. This in turn can result in long processing times for transactions and high energy consumption.

New models have evolved which aim to solve the scalability issue. These include the proof of stake, proof of capacity, and proof of history models.

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Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at