An algorithm that rewards participants, known as miners, for solving a cryptographic puzzle. At its heart, the benefits of PoW are security and economy, in that any attack on the system i.e. blockchain, would be expensive vs. the rewards one would receive from doing so. Bitcoin is an example of a PoW blockchain and cryptocurrency in which dedicated software, powered by energy intensive CPUs, GPUs and ASICs, use the SHA 256 hashing protocol to produce new blocks. The value of Bitcoin and other PoW based cryptocurrencies is therefore derived from the hardware and infrastructure costs associated with its production.
Bitcoin’s PoW protocol works by allowing miners to broadcast the computational work they have done to the network, with the network then verifying that work. The work is verified because it is represented as a unique block, which in itself is attached to a chain of unique blocks. These blocks are unalterable by anyone, ensuring the validity and fungibility of the system. Bitcoin’s PoW protocol is based on a system invented in 1997 by British cryptographer Adam Back, who created an algorithm called Hashcash designed to limit email spam. By proving that an email was created by a human, rather than a machine, the algorithm was able to limit the economic returns of spammers who would use computers and bulk delivery, by increasing their cost per email.