Sensitive data is stored on the blockchain network. Any security lapses could result in hacking and exposing such information to unlawful activities, such as theft of digital coins. Hackers in particular may steal users’ addresses and private keys, and this could affect the integrity of the whole system.
For this reason, crypto developers have always been taking necessary steps to upgrade blockchain technology, along with government efforts to deter cybercrimes. Users, too, have a crucial role in their safety while doing online transactions for trading or investing purposes.
The security issues hounding crypto trading have resulted in many efforts to prevent and put an end to them. Through the years, the system has been the subject of new technological advancements. But still, the risks are ever-present. It’s always an inherent part of any business venture.
Nevertheless, through certain mechanisms, the cases of fraud and theft are minimized. One great example of such is the concept of “proof of work.” which has been maintaining the integrity of the crypto network since then.
Understanding proof of work
Bitcoin was introduced as a cryptocurrency in 2009. Since then, security threats have concerned the developers and prospective traders. Thus, to address the matter, a system was developed to deter frivolous or malicious acts. It’s called “proof of work” that requires nodes on a network to provide evidence that users have made computational power to achieve consensus in a decentralized way to prevent absolute control of the network by unwanted parties. In essence, this system ensures that the digital transactions would be secure among all participants.
Nevertheless, the work is arbitrary. It usually involves a particular way of hashing algorithms. Whoever wins the round of hashing gathers and records transactions from the pool into the next block. The winner in the process is randomly chosen and proportional to the effort made. This incentivizes everyone on the network to act honestly and record every single transaction.
Cryptocurrencies need proof of work because the blockchain network would require some mechanism to achieve consensus and security. Other reasons are the decentralized system and the peer-to-peer design of the crypto network. The POW is a method that keeps the network secure from possible control. Without such a system, the blockchain and the data stored within it could be vulnerable to attack.
Miners can only generate one hash from a given set of data. To ensure that they can generate a hash below the target, they have to change the input by adding an integer. Once they find a valid hash, it is introduced to the network, and another block is added to the blockchain.
The mining process can be very competitive. On average, a participant can generate acceptable proof of work for every ten minutes, but the identity of that player is guesswork. Mining pools have emerged to have the edge over other users, thereby generating transaction fees and getting rewards.
With proof of work required, it would be difficult to alter any data of the blockchain. Doing so would need re-mining of all subsequent blocks, which is highly unfavorable for any player. Likewise, this system prevents the monopoly of the network’s computing power as the machinery required to do that becomes very expensive.
What is a hash and why does it matter?
A hash is a mathematical function that converts a set of arbitrary data into an encrypted output of a fixed length. Crypto participants can detect tampering through hashes that serve as proof of work in this case. The reliable indicator is that the data generated will remain the same in length regardless of the previous data set. Hash, then, is used to verify whether the output matches the original data.
The process enhances the security of the blockchain network as it sets a certain level of difficulty before the data could be verified. A target is used to set the difficulty – the lower it is, the smaller the set of valid hashes and the harder it is to generate data.
Keep in mind that the proof of work is a decentralized consensus mechanism where members of a network need to exhaust efforts to solve an arbitrary mathematical puzzle to prevent any person from manipulating the system. It is widely used in crypto mining, particularly for validating transactions and mining new coins.