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Definition: proof of work algorithm

A puzzle that is designed to take time to complete. In order to impede spammers, a proof of work algorithm has been suggested as a mandatory technique when sending email. For example, if every email message required just 30 seconds more to process, a compromised computer could never quickly unleash millions of messages. Cryptocurrency mining for Bitcoin and other currencies also uses a proof of work (PoW) algorithm (see Bitcoin and Bitcoin mining).

How the PoW Algorithm Works
A challenge string is presented that has to be hashed together with an unknown number to derive a result that matches some criterion; for example, the first 20 bits must be zero. When that criterion is reached, it proves that a certain amount of computer processing was undertaken. It takes massive amounts of hash calculations per second to find a number that proves the challenge. Miner hardware is rated in hashes per second (see miner hardware and cryptographic hash function).

Proof of Stake (PoS) Algorithm
A proof of stake (PoS) differs entirely from proof of work (PoW). PoS miners are allowed to confirm transactions based on how much crypto they have. For example, if a miner owns 2% of the value of all the crypto in the world for that particular cryptocurrency, the miner will be allowed to confirm 2% of the new transactions. From a mathematical standpoint, proof of stake is much less complicated than proof of work.

Ethereum 2.0 is a proof of stake method being tested to replace the proof of work algorithm that Ethereum has used since its inception. See Ethereum 2.0.

Why change the method? Because as PoW miners become more monopolistic, any single miner with 51% or more of the network's computing power could invalidate good transactions and double spend the coins. With PoS, any miner with that much "at stake" would not want to destabilize the system. See Ethereum.