In PoW, miners must pay a lot of money for electricity to solve complex mathematical puzzles and process a block on the network. The electricity is used to power the machines that generate digital assets through the process of verifying transactions, called mining. Moreover, energy expenditure is critical to the network’s security, as it allows it to keep an accurate record of transactions and adhere to a specified, credible monetary policy.
Furthermore, the network is kept secure because defrauding the chain would require a malicious actor to take over 51% of the network’s computing power. If a blockchain gets forked in a proof-of-work system, miners must choose whether to move to the newer forked blockchain network or continue supporting the original blockchain.
A miner would have to split their computational resources between the two sides of the fork in order to support both blockchains. As a result, through an economic incentive, proof-of-work systems naturally prevent constant forking and urges the miners to pick the side that does not wish to harm the network. On the other hand, if you are vulnerable to a 51% attack or if you’re not on the most significant coin holder for any interchangeable hashing algorithm, individuals on a larger coin might turn their hardware against you and take you out, and you can no longer earn an incentive.
These characteristics lend themselves to the game theory, in which miners must act strategically to optimize their investment returns. People, like bounded rationality states, will always choose the simplest solution. Moving to a newer chain makes things more difficult. Therefore, game theory helps oligopolies avoid internal corruption and make logical decisions.
Despite the above advantages, PoW could be quite costly and inefficient in terms of resource usage. Miners must cope with a variety of expenses, including the latest equipment that quickly wears out. Mining tends to produce a lot of heat and could rack up exorbitant electricity, depending on the location of the miner. Furthermore, the system’s transaction fees soar when the network becomes overloaded.