​The technology behind cryptocurrencies varies from one coin to another.  While some digital currencies like Bitcoin can be mined, others may be forged.

One of the major defining factors of any coin is the consensus model that it uses as this determines how the coin achieves distributed consensus.

There are many types of consensus algorithms, the main ones being PoW, PoS, PoA, dPoS, PoB and PoL.

The Meaning of PoW

The idea of Proof of Work, also known by the acronym of PoW, existed long before the first cryptocurrency was created.

It’s an economic measure that was initially created to deter spam emails. 

The invention of PoW is credited to Cynthia Dowork and Moni Naor, who published it a journal in 1993.

The phrase itself is believed to have been coined later in 1999 by Markus Jakobsson.

In its natural form, Proof of Work is a system that was designed to deter computer users from misusing their computing power through malicious activities such as sending spam emails.

It requires them to show a feasible amount of effort known as “work” before their request is approved by the system.

Sending a single email requires minimal “work” but sending spam emails needs lots of resources, which comes in the form of computing power.

The information provided here is for informational purposes only and should not be seen as investing advice. Our opinions on this site are only that, if you are considering an investment into cryptocurrency or anything we speak about on this site, please advise a trusted financial professional first, before doing so.

Relevance With Cryptocurrency

In the cryptocurrency industry, PoW is a method used by cryptocurrencies to gain distributed consensus.

It was first deployed by Bitcoin as a method of validating transactions and adding new coins into the market, also known as mining.

Mining also secures the blockchain as miners are incentivized to maintain the integrity of the network.

​How Does It Work?

In cryptocurrencies that utilize the PoW protocol, miners running peer-to-peer computers compete with each other to validate other people’s transactions on the blockchain.

The miner who adds a block of transactions to the blockchain is rewarded with a defined number of coins for their “work” in the network.

The reward is used as an incentive that encourages miners to maintain the integrity of the network by safeguarding against double spending.

Another key role of the PoW algorithm is to safeguard the network from bad actors.

To breach the network, you’ll need to execute the 51% attack, which basically requires you to have over half of the network’s computing power to take control of the network.

Economically, this isn’t possible because of the large amount of money required to make this possible, which easily runs into hundreds of billions of dollars.

​Issues with the PoW Algorithm

Cryptocurrency mining, or PoW consensus, is notorious for consuming loads of electricity to confirm transactions because miners have to use power-hungry mining rigs to get the massive computational power needed to do this.

Additionally, PoW consensus centralizes mining. Due to the slim profit margins associated with mining, miners need access to cheap electricity in order to conduct these activities. 

Countries such as China have cheap electricity and as a result, have the largest concentration of miners.

Because mining requires users to have expensive mining rigs in order to mine, it tends to lock out poor communities from participating as miners.

Alternative Consensus Algorithms

While PoW is the oldest consensus algorithm, there are many other models that are being adopted by newer cryptocurrencies.

Other consensus algorithms include Proof of Stake, Proof of Burn, and Proof of Location.

What is Proof of Stake?

Proof of Stake is a consensus algorithm that enables a cryptocurrency network to achieve distributed consensus. 

Unlike proof of Work, Proof of Stake doesn’t involve mining.

Instead, coin holders lock a given amount of their coins to verify transactions and to secure the network.

Investors holding PoS coins don’t need to perform cryptic computational puzzles for them to confirm transactions. 

This makes it easier for those without access to expensive mining rigs to engage with the network and participate.

There are also special safeguards in place to make sure that those with the largest number of coins aren’t the only ones who receive rewards on the network.

Relevance With Cryptocurrency

In a coin that utilizes PoS, coins are not mined but forged instead. Coin holders who stake their coins get to confirm transactions. They earn the transaction fee as an incentive.

They also safeguard the network from malicious actors and hackers.

In case there’s a breach of the network, coin holders stand to lose their staked coins, so they have to keep the system secure.

​How It Works

All they need to do to “stake” their coins and the system randomly selects the coin holder who will generate the next block.

Most PoS coins have measures in place to deter coin holders with the largest amount of coins from controlling the network.

Such measures include a randomized block selection and the coin age selection, or a blend of the two.

Even the coin age selection has special safeguards that prevent those with the oldest coins from holding and continuously controlling the network.

What is Proof of Burn?

PoB stands for Proof of Burn. PoB is a consensus algorithm that’s an alternative for PoW and PoS.

The main concept of PoB is the “burning of tokens”.

The algorithm burns tokens in such a way that makes them impossible to recover due to the fact that the process itself is extremely hard to undo.

How It Works

Most people ask why coins that took miners lots of effort and resources to mine are burnt.

The idea of PoB is to add value to an existing coin.

The value of a burnt token is transferred to a new token that is yet to be generated. It’s akin to hedging.

In PoB coins, miners get rewarded depending on the amount of energy they used to mine the cryptocurrency that’s being burnt.

Burning a cryptocurrency simply means you are sending it to an unusable address.

Proof of Location

The Proof of Location algorithm requires a network participant to prove that they were in a certain location at a given time.

How It Works

In a PoL coin, miners get the authorization to mine coins once they prove to the network that indeed they attended an event at a certain geographical place at a given time.

Once there, they can mine coins for as long as they wish.

Miners in a PoL coin are required to use a trusted location service to prove to the entire network that they are in a given geographical location.

They stand to lose the mined coins once another participant near this place validates transactions confirming that the miner was never present in that location.

PoW Vs PoS

While PoW uses miners to confirm transactions and to add new blocks to the blockchain, PoS coins use a staking model where coin holders “stake” their coins to be allowed to confirm transactions and to secure the network.

PoW miners get newly minted coins when they add a block of transactions while PoS coin holders take up transaction fees generated by the network.

Pros of PoS

PoS seeks to succeed where PoW fails: power consumption.

Compared to PoW, PoS is energy-efficient because it doesn’t involve the energy intensive mining process.

Coin holders also secure the network as they stand to lose their stake in case the network in infiltrated by bad actors.

PoS also tends to promote decentralization because it uses different models to select the person who ends up generating the next block.

However, it has to be noted that coin holders with the largest amount of coins have more influence when it comes to getting selected to generate blocks.

Cons of PoS

One of the most problematic cons of the PoS system is known as the “nothing at stake” dilemma.

Critics argue that, in the event of a fork, block generators of a PoS coin can support different forks as they have nothing to lose.

With such liberty, it can be extremely hard to get consensus in such a scenario.

In contrast, PoW coins don’t have such a dilemma as a miner cannot support forks without splitting their computing power.

PoW Vs PoB

While PoW involves miners validating and confirming transactions to add new coins to the market, PoB algorithm is all about location value.

A miner must prove that they are at a given location and that they are using a trusted location device.

When they do so, they are rewarded with the rights to mine cryptocurrencies.

Pros of PoB

PoB is ideal for the creation and distribution of new digital coins.

Compared to PoW, it consumes less energy. It also allows for fair distribution of coins since mined coins can’t be monopolized by ASIC miners and mining pools.

In addition, burning determines the willingness of investors to support a project in the long-term.

If they’re willling to initally lose coins, they stand to gain more coins in the long run.

Cons of PoB

Burning is a risky exercise for investors as they can’t really tell if they’ll ever recover the value of the burnt coin and it is perceived to be a waste of previously established value by most.

Profitable PoW Coins

Despite the fact that PoW mining consumes lots of energy, there are a number of PoW coins that you can profitably mine.

Here are the two most profitable PoW coins to mine at the moment.

Ethereum Classic

It’s an open-source public blockchain that forked from the original Ethereum blockchain.

Like Ethereum, it runs smart contracts and uses the Proof of Work algorithm.

Ethereum Classic uses the Dagger-Hashimoto mining hardware.

With just over 3 GB of either AMD or Nvidia graphic cards, you can easily and profitably earn ETC.

The mining difficulty of ETC stands at 182 TH. It has a block reward of 4 ETC plus fees for every block mined.

To get the best out of ETC mining, it’s advisable that you join a pool of miners.

Decred

This is a privacy-focused blockchain platform that supports different operating systems including Windows, MacOS, and Linux.

Decred miners wishing to get a steady income from mining should consider joining a pool of miners.

Previously, Decred mining was profitable but the introduction of Decred ASICs early this year decreased the profitability of mining the DCR coin.

ASICs have been blamed for the increased difficulty of DCR mining.

Decred difficulty stands at a staggering 3,975,462,300 compared to the previous 273,629,001.

The best part about DCR mining is that you can mine it alongside another coin, like ETC.

Overall, mining DCR is no longer a profitable venture if you don’t have specific ASICs.

Proof of Work is one of the first consensus methods to be utilized in cryptocurrency as it was implemented during the birth of Bitcoin.

Although there are several other methods being used that you will find in other coins, Proof of Work continues to remain one of the most utilized and will continue development as more coins emerge and seek to use it for their own consensus model.

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