Relatively recently, we marveled at the world’s first cryptocurrency — Bitcoin. It was something innovative and unique, so much so that it caused alarm.
The first enthusiasts who set out to mine this crypt later realized that they had discovered a real gold vein. Only instead of mines, picks, and shovels, they used thousands of computers.
Take a look at bitcoin360ai, they could explain it to you easily.
These computers form mining rigs that work around the clock to generate new tokens and put them into circulation. Mining is also responsible for confirming transactions, as well as the security and development of blockchain, the technology behind crypto.
To do this, computers perform millions of mathematical calculations, which become more and more complex every day, as more and more enthusiasts want to snatch this tidbit – the reward in the crypt.
In 2009, when Bitcoin first started to be mined, miners were able to get 50 BTC for each mined block in the blockchain system. However, with the growth of the price of bitcoin, its mining became more difficult.
Over time, some countries began to oppose mining. Why? To begin with, let’s consider how mining works, as well as why they are trying to ban mining using the Proof of Work (PoW) mechanism.
What is PoW and how does it work?
Cryptocurrency is decentralized and does not depend on intermediaries. That is why it needs methods that would allow you to verify all transactions and data that are added to the blockchain.
Blockchain, in turn, is a distributed database that stores records of all transfers. This information is organized into consecutive blocks and is publicly available, and a distributed network of participants verifies all transactions and data, making counterfeiting or other financial fraud impossible.
The distributed network of participants is the miners who use special methods of verifying information on the blockchain. These procedures allow them to ensure the transparency of transfers, mine crypto and maintain the proper functioning of the blockchain.
PoW (Proof of Work) is a software algorithm, also known as a consensus mechanism. He is responsible for the selection of participants who will verify new data.
How does it work? The system challenges miners to solve mathematical puzzles to prevent abuse and various violations on the blockchain. Whoever completes the task faster can create a new block of verified data in the chain and, as a result, receive their reward in cryptocurrency.
The world’s first cryptocurrency, Bitcoin, demonstrated the viability of the PoW mechanism. As a result, this method is now used by a large number of altcoins, including Ethereum, Dogecoin, Litecoin, and Monero.
But 14 years have passed since the launch of Bitcoin. During this time, the cryptocurrency industry has undergone significant changes. Other consensus mechanisms have emerged that, as an alternative to PoW, may supplant this method altogether. Ethereum is planning a multi-stage upgrade that also involves changing the consensus mechanism.
What is wrong with PoW
Although PoW is an effective method of verifying transactions and data on the blockchain, its disadvantages will soon outweigh its advantages.
The first and most critical problem is that proof of work consumes an excessive amount of electricity.
According to the New York Times, in 2009 it was easy to mine one bitcoin using a regular PC and a minimal amount of electricity. Now you need a bunch of specialized computers and as much electricity as a typical American house would use in 9 years.
Another problem is the regulation of mining farms. It is logical that such activity should be monitored given the intensive computational and energy requirements. However, this can lead to the centralization of the crypto, which negates its main function — complete independence from intermediaries and regulators.
