Proof-of-work is the foundation of many big name cryptocurrencies. Currently, Bitcoin, Ethereum, Monero, Litecoin, and many others utilize this protocol. This protocol has many benefits. It is adaptable in its difficulty, and allows the creation of coins to mimic the mining process of gold. Much like how actual gold miners put in large amounts of work and time to unearth the precious metal, so must investment miners. Although not digging in the ground, POW miners provide the foundation for these coins by doing all of the ‘leg-work’. They are the ones putting in the time and resources to unearth/unlock BTC into the world for use. BTC has been criticized by some ‘pundits’ as it is not backed by anything, providing a foundation to prop up the currency and give it a base value. This could not be further from the truth. These coins, utilizing POW, are backed by the invested resources that have been sacrificed throughout the mining process. For a miner to unlock/earn a single BTC, the cost of equipment, time and computing gear results in a 1btc cost of thousands of dollars. The coin is backed by resource investment.
Unfortunately, despite the many benefits of POW, it has many issues to deal with. The first is the susceptibility of young networks using this protocol. Attacks on the networks, known as 51% attacks, used to be a very rare occurrence. With the creation of so many new coins, many are not up to snuff. Many do not possess a stout enough network to fend off these attacks, making for a very dangerous and unsecure environment to deal in investments. These networks need time to develop a user base large enough to result in sufficient hashing power to deter would-be attackers.
On the flip side, comes the issue of excessive resource consumption. If a coin is adopted to the point where the network hashing power is so great that a 51% attack is nearly impossible, it becomes quite inefficient. As the number of miners on a network grows, so does the difficulty of the algorithms that must be solved to unlock the networks associated coin. This means a huge increase is needed in computational power to remain effective as a miner, and the power needed to complete the task.
This electrical inefficiency is the leading cause of miners fleeing for lands that offer cheap electricity and cool environments. Iceland and Canada are two perfect examples of such countries. In the past year many mining outfits have signed agreements with not just private landlords in an attempt to set up shop, but with actual towns/provinces/states. An example of just how much power is used in the mining process is developing in Quebec, Canada right now. The largest Canadian province has put a halt on new mining ventures within their borders. They are doing so because the provincial electricity provider, Hydro-Quebec, simply cannot produce enough electricity to provide services to the entire province and the new mining outfits. Hydro-Quebec, however, does not want to miss out on the lucrative opportunities that mining affords them. Post regulatory crackdown by the province, the electric company has suggested the need for a selection process for appropriate blockchain ventures, rather than a blanket ban.
As can be seen, POW users must continue to clear large hurdles of insecurity in their early stages, and inefficiency in their later stages. Despite all of the benefits that the protocol affords, expect to see many new coins transitioning away from it. Even current players such as ETH are in the process of transitioning towards POS.
