Cryptocurrency has much more character to it than what any blockchain interface or crypto app will show. The processing, calculation, and verification that happens in the background, away from the user’s eye is complex and built with sophistication.
While the blockchain is hard to crack, and hackers looking to hack the big wallets of digital assets, the inner workings and transparency within a cryptocurrency and its cryptic back end management makes it very hard to succeed. Even though the sums in a particular wallet can be huge, the hackers usually do not find it worthwhile to hack into the system.
This is not a flaw. Ironically enough, it is intentionally made a part of the system by adding a layer of protection called the Proof of Work (PoW) of each transaction. This helps in making the blockchain network a trustless entity that is safe nonetheless.
How does PoW work?
A proof of work algorithm is a method to achieve consensus on which block will be added next to the blockchain. The blockchain requires proof that work of some kind occurred. This is where it comes in handy.
The PoW is a mathematical explanation of logical relationships that tells the story of the transaction. The story of numbers, dates, time and owners from mining to spending. It is represented in cryptic text. It takes more than ten minutes to calculate the PoW of each transaction. Making replication, tempering, and meddling very difficult.
In other words, PoW is a strategic formality that contains the details of a transaction. Developers develop an algorithm that helps in calculation of the PoW. The algorithm is different for each blockchain. The better the infrastructure of the PoW, the better the protection and transparency of the currency will be.
This makes any alterations a flagged on each channel on the network, causing alerts until someone takes notice and looks into the issue. This causes the system to be in order before it is too late. For example:
Proof of Stake:
However, the proof-of-work verification is relatively slow, and its energy-intensive nature encourages the formation of “mining pools” or miner “oligarchs” which can monopolize verification. This creates central intermediaries that may be corrupt or become a target for malicious attacks.
Because of this, some cryptocurrencies are adopting “proof-of-stake,” where the ability to verify transaction blocks is determined by the size of the miner’s investment. Proof-of-stake is less vulnerable to monopolization and malicious attacks, but on its own, it encourages fragmentation of the system, so it is usually combined with some other mechanism to discourage excessive mining.