Many developers and experts on the subject of cryptocurrencies, specifically Bitcoin, often highlight the importance of proof of work as the essence of the mining process of this digital asset.
It has gone to the extreme of considering that whoever does not know precisely the importance and purpose of proof of work does not understand what Bitcoin consists of.
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What is Bitcoin proof of work?
The proof of work (PoW) is considered the fundamental pillar of the number one digital asset according to Bitcoin market capitalization; it is known as the procedure by which transactions are approved, eliminating intermediaries and replacing them with the same network participants.
These members or participants of the network are in charge of approving the transactions that are executed through the blockchain, eliminating the possibility of malicious operations being carried out; consequently, all miners supervise these transactions and support the creation of a new block in the chain.
It is considered by many to be the solution to what is known as double spending, where the peer network is used, that is, the well-known P2P, where transactions are grouped in a chain for subsequent approval, recording the time in which was executed and from there no modification can be made.
The creation of a new block is due to the mathematical calculation of an algorithm that is solved by trial and error, where its solution automatically generates a new partnership that is added to the chain. In turn, Bitcoins are generated and the respective rewards to the miners.
How the PoW Works
The term may seem complex, but the operation of the PoW is mainly based on four phases which can be described as follows:
The creation of the mathematical algorithm by the user could be considered the beginning of the Bitcoin creation process, where a transaction is created to be resolved and approved by the network and later receive remuneration or economic incentive.
The resolution of the mathematical problem entails a set of costs that are, in many cases, relatively high.
The approval or rejection of the transaction is made public to the network to continue with the process and avoid what is known as double-spending.
The miner is rewarded with a profit for the development and effective solution of the mathematical algorithm, which gives rise to a new block in the blockchain.
Energy consumption weakens bitcoin.
Bitcoin and cryptocurrencies, in general, have been compared to the future of Fiat money, where electronic financial systems could be the protagonists of the economy and the new way of marketing goods and services.
When it is indicated that energy consumption decreases, the use of Bitcoin refers directly to the supply and demand of this crypto asset, where the higher the request, the higher the electricity consumption, and in the opposite case, the lower the order, the lower the consumption.
During 2022 there have been several peaks that Bitcoin has experienced in terms of its energy consumption, managing to touch more than a 50% decrease in the hash rate, mining being significantly affected because more Bitcoins were sold than that were mined.
For this reason, if there is no considerable electrical consumption, mining and creating new digital currencies are weakened because investors are not considering Bitcoin as a leading investment option.
Ownership of bitcoin is thanks to the PoW.
The decentralization of Bitcoin and the Blockchain is widely known, which allows that there are no intermediaries or third parties that have power over the operation of cryptocurrencies.
It is there where it is considered that the ownership of Bitcoin belongs to each user, only that this is defined after the proof of work, where the consensus is the one that grants each participant of the network the ownership of the digital currencies that are subsequently mined.
Conclusion
Bitcoin revolutionized the way of seeing finances by including concepts of great collective interest, such as the possibility of obtaining additional income without having to depend on a third party, in addition to the fact that each person has the freedom to dispose of their capital at the moment that it is so arranged.
The returns in any financial market depend on the investor’s operation to his resources. To obtain more information regarding this type of digital asset, enter to Bitcoin-Prime trading system