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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 also uses a proof of work (PoW) algorithm (see 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 40 bits must be zero. When that criterion is reached, it proves that a certain amount of computer processing was undertaken. It can take quintillions of calculations to find a number that proves the challenge. See Bitcoin.

Proof of Stake (PoS) Algorithm
A proposed mining method for the Ethereum cryptocurrency that differs from the proof of work (PoW) challenge. PoS miners are allowed to confirm transactions based on how much ether they have. For example, if a miner owns or is willing to lock up 2% of all the ether in the world, it will be allowed to confirm 2% of the new transactions. The PoS cryptographic algorithm is much less intense than the PoW algorithm.

Why change the method? Because as PoW miners become more monopolistic, any single miner with 51% or more of the cryptocurrency 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.