Some of the below is based on Ethereum official documentation, as this is applicable to many others, and the documentation is well kept by a large community. Besides, Ethereum is so far the second largest crypto.
The good, the bad, and the ugly about PoW
Let us start by posing an overall idea of what PoW implies.
It’s a well-tested mechanism. Has been around since the beginning of cryptocurrency, and is not too complicated to implement.
Nowadays you can’t mine with your usual desktop/laptop computer, but rather with a highly specialised machine. This issue created a new business: now companies with expensive equipment are the ones doing most of the mining.
Because of the above, we now see an issue that goes absolutely against the decentralisation promised by cryptocurrency: that the companies running large pools of mining could dominate the crypto market, holding much power in their hands.
It’s very expensive in terms of energy consumption, thus, is bad for the environment. In addition, one of the rules of PoW is that Difficulty to generate a new coin is proportional to the number of miners and the number of blocks generated. This means every time becomes more difficult the mining of new coins. So, we can assume the energy consumption will continue increasing with time. Really ugly, isn't?
With the above features, let's jump into some questions that are floating around.
What would happen if a group would want to corrupt the blockchain?
An option could be to create a second blockchain, copy of the original, and add fake blocks. Then the miner should solve blocks faster than anyone else (faster than the rest of the world’s entire group of miners). To do so, you’ll need 51% or more of the total global mining power. This would be tremendously expensive, with the reward being smaller than the cost of such an endeavour.
Why miners buy expensive hardware to participate on Proof of Work?
Well, maybe, if you have deep pockets you’ll do it just because you can buy the mining rigs with your "pocket money". But for many (if not all) the reason is one: it is profitable.
Miners who “discover” new blocks (by computing a valid Nonce) are rewarded in 2 new ETH plus all the transaction fees (gas) within the block. Also, if 2 miners simultaneously solve the same block, the second miner gets 1.75 ETH.
Not a bad deal.
Let’s be pessimistic for a moment: What would happen if 2 or more miners solve the same block, at the same time, but some of the solutions are not valid?
Copies of the solved blocks (plus the blockchain) are kept for evaluation. After checking, the valid block (it’s unique, even when is duplicated) is kept, and the failed are discarded. The blockchain is updated to the successful branch of blocks.
The usual time it takes to make sure a block is fully validated is about 1 minute or 6 blocks, depending on the status of mining.
Hope you liked this post, maybe now you'll have more material for an icebreaker. Now you're deeper into crypto, don't miss our next post on Proof of Stake. You'll be surprised!