Proof of Work (PoW) is a blockchain consensus mechanism in which miners compete to find a number that, hashed with a block's contents, produces a result below a network-set target; the first to succeed publishes the block and collects the reward, and every other node verifies the answer instantly. Bitcoin, the largest PoW network, targets one block every 10 minutes and recalculates difficulty every 2,016 blocks. Winning odds are proportional to a miner's share of hash rate, so security rests on hardware and electricity. A party controlling over half the hash rate can double-spend its own transactions, which is why exchanges set confirmation thresholds per asset. Under MiCA, CASPs disclose energy consumption for each consensus mechanism they service.
How does proof of work work
Bitcoin miners repeatedly hash the block header with SHA-256, changing a nonce field on each attempt. There is no shortcut, so the chance of winning a block is proportional to a miner's share of total network computing power, or hash rate. Bitcoin targets one block every 10 minutes on average. Every 2,016 blocks, roughly two weeks, the protocol recalculates the difficulty: if the last 2,016 blocks came faster than 10 minutes each, the target becomes harder, and if slower, easier.
The winning miner receives the block subsidy plus the fees of the transactions it includes. The subsidy halves every 210,000 blocks; since the April 2024 halving it has been 3.125 BTC per block, and total issuance stops just short of 21 million BTC.
Proof of work vs proof of stake
Proof of work ties security to external resources, hardware and electricity, while proof of stake ties it to tokens locked on the network itself. Ethereum used PoW until the Merge on 15 September 2022, when the switch to PoS cut its energy use by about 99.95%. Energy use is now a disclosure item: under MiCA, crypto-asset service providers must publish sustainability indicators, including energy consumption, for the consensus mechanism of each crypto-asset they service.
What is a 51% attack
A miner or pool controlling more than half of a network's hash rate can build a longer chain than everyone else and reverse its own recent transactions, a double spend. It cannot take coins from other addresses or change the subsidy rules. Small PoW networks are the usual victims, because renting majority hash rate costs little relative to the amount that can be double-spent.
That is why exchanges set confirmation requirements per asset. Illustrative: if renting majority hash power on a small coin with one-minute blocks costs $5,000 an hour, and an exchange credits deposits after 10 blocks, an attacker can double-spend a $200,000 deposit for under $1,000 of rented power. Requiring 300 confirmations stretches the attack to five hours and $25,000, and gives the exchange time to spot a competing chain.
Mining economics
A miner's revenue depends on its share of network hash rate, the coin's price and fees; its costs are mainly electricity and hardware depreciation. Each halving cuts subsidy revenue in half overnight, so miners with above-average power costs are the first to switch off.
For a buyer of a VASP, PoW matters through operations rather than mining: confirmation thresholds per asset, the history of deposit reorganisation incidents, and the sustainability disclosures published for each PoW coin it lists.