The term “Proof of Work”, refers to a piece of data, which is difficult to produce but easy for others to verify.
Basically, it is a consensus building algorithm that limits exploitation of crypto-currency mining.
Proof of work functions are purposefully difficult, so that they prevent malicious behavior from spammers and it also prevents, a single person from having control over which block is added to the ledger next.
Additionally, it gives value to the coins and the mining process, because each coin that has been created required quite a bit of effort.
Proof of Work mining requires the installation of a powerful computer or mining rig, to solve the complex mathematical puzzles.
Once several calculations are successfully performed, the transactions are bundled together and stored on a new block on the blockchain.
An alternative to Proof of Work, is Proof of Stake, which similarly is a type of algorithm which aims for distributed consensus but the process to reach the goal is quite different.
Proof of Stake is a lot more energy efficient, in that it can reduce the number of complex calculations.
Proof of Stake essentially means that the “forger”, has to show ownership of a certain amount of currency, to be able to be able to mine or validate block transactions.
So the more currency a person owns the more mining power they have.
In the case of Proof of Stake, the “forgers” receive transaction fees as rewards, rather than receiving a crypto-currency unit in most cases.
A “forger” must first put their own coins at stake and if they validate a fraudulent transaction, they lose their holdings, as well as their rights to participate as a forger in the future.
