The newly emerging PoW project Kaspa has performed well recently, with a 100-fold increase in just one year, and its market value has entered the top 50. A PoW coin surpassing many star projects is quite puzzling. Why is this seemingly outdated mechanism of PoW so remarkable?

There are two common explanations:

• Looking at PoW during a bear market

• After Ethereum's transition to PoS, the remaining computing power needs to find a new host

These two viewpoints are roughly correct from a macro perspective, but careful consideration reveals that it is not that simple.

Looking at PoW during a bear market

"Bear market looks at PoW" is a summary of industry consensus. But behind this statement actually means that under bear market conditions, major funds will withdraw from narrative-driven assets, and remaining funds will gather on assets with objective value evaluation criteria, while the production of PoW coins is objectively valued due to the need for electricity consumption. However, when the bull market comes, due to the lack of innovative triggers like ICO, DeFi, and governance, other narrative-driven projects will take the lead.

The development of PoW has been 14 years since the birth of Bitcoin, becoming the air and water of the industry. People have become accustomed to PoW, and PoW hasn't impressed anyone in a long time. Only when the industry encounters various problems and new "IXO" projects prove to be impractical, people will pay attention to PoW again.

So, the meaning behind "Bear market looks at PoW" not only implies the objective value of PoW but also indicates that PoW lacks innovation in the cryptocurrency industry. Any innovative projects, with good market promotion, will rise in the bear market.

The computational capacity after Ethereum PoS

Ethereum is transitioning to PoS, and the old computing power needs new targets. This raises another question: why haven't other PoW projects, besides Kaspa, performed as well? The main reason is that it all comes back to the innovation of PoW projects.

The rise of Kaspa is not purely because of the PoW mechanism itself, but because of the combination of PoW and an innovative DAG-like technology called BlockDAG, which makes it the fastest and highest throughput layer 1 chain in terms of transaction processing. The market no longer responds only to the term PoW; something new must be presented.

If we evaluate solely based on transaction processing speed and throughput of Layer 1, many capital-driven projects come to mind, such as Solana, Aptos, and Sui. They have all abandoned the "outdated" PoW mechanism. Kaspa breaks this pattern, even though its BlockDAG technology seems to be another form of "big block approach".

This also validates the previous observation: PoW, combined with good innovation, can still succeed even in a bear market.

Review of PoW Project Innovations

So the innovation of PoW is crucial, but this article discusses the innovation of the narrative direction of PoW projects, rather than the innovation of the technical details of PoW. The innovation of the technology itself will be discussed in a new article. Let's review the innovative journey of PoW projects, and we mainly distinguish them based on whether the PoW project has entered the top 100 in market value.

Bitcoin was the first successful project using the PoW mechanism. After Bitcoin achieved success in the first stage, many later projects gained market attention only through forks and simple modifications of certain parameters, such as Litecoin, Dogecoin, Bitcoin Cash, etc. Some even just rewrote the code of Bitcoin in a different programming language, for example, Novacoin is a Java version of Bitcoin aimed at serving enterprise-level purposes.

So the main objective of the first stage of PoW innovation projects was to surpass Bitcoin and fill the gaps in segmented markets, even though the markets they targeted may not have much value at the time.

The second innovative stage was the combination of PoW and PoS. Representative projects include Peercoin and Dash. The purpose was to use PoS to govern the development of their projects. After the value of PoW was magnified by the success of Bitcoin, it further boosted the development of PoS. It has become a common belief that PoS will play an equally important role or even surpass PoW. This influence still exists today, as demonstrated by the development of DAO, which believes that efficient decentralized cooperation can be achieved through various PoS mechanisms.

The third innovation is represented by privacy coins based on PoW, such as Monero, and later emerged new privacy coins like Zcash, Grin, and IronFish. However, it can be observed that most of these later contenders...

Couldn't surpass Monero. The main reason is that privacy is ultimately to meet needs, privacy technology is not the goal but only the means. The effect of privacy has not changed much, no matter how new the technology is. In addition, privacy has network effects and requires a large amount of money for mixing. Monero's user profile is accurate, mainly serving hackers, and ordinary people do not have a strong need for privacy. 

Another point that can be found is that new privacy projects tend to adopt PoW, the important reason for this is privacy needs a truly decentralized mechanism, various PoS to some extent will bring centralization problems. Without ensuring the degree of decentralization of the chain, privacy is not even possible to discuss.

The fourth innovation is PoW combined with smart contracts. Ethereum is the representative of this direction. Although it has shifted to PoS, public chains that continue to use PoW for smart contracts still exist, such as Nervos and Conflux. The main reason for adopting this is that PoW mining is currently the most fair token distribution system and has been proven to be a stable consensus mechanism over the long term.

The fifth innovation is PoW combined with DAG technology. DAG technology is not strictly speaking blockchain. Its main purpose is to improve the TPS of PoW chains and solve the slow transfer problem of Bitcoin at Layer 1. However, DAG technology usually needs to make trade-offs between decentralization and preventing double spending. Represented by Kadena and Kaspa. The Kaspa mentioned at the beginning of the article innovates on the technology of DAG.

From these five innovations, it can be seen that the essence of their innovation lies in solving three aspects of improving blockchain: transaction speed, privacy, and transaction diversity.

New Opportunities for PoW Projects

These innovative PoW coins represent projects that have entered the top 100 market cap globally. Besides these five innovations, what are some other undiscovered PoW innovative projects? Currently, I have identified four main ones.The first, the combination of PoW and NFT. Representative projects include HACD.art, PoW NFT, and Mineable Punk. From these projects, it can be analyzed that PoW plays a role in NFT, PoW can make the distribution of NFT more fair, instead of being controlled by the team, this is a common advantage of all PoW NFT projects. In addition, the number of blue-chip NFTs is limited, how to solve the issue of new blue-chip NFTs, adopting the PoW mechanism is also more reasonable, which is the characteristic of MineablePunk; PoW can also improve the long-term sustainability of NFT, because PoW can stop production when the demand decreases and produce when the demand increases, like HACD.art has gradually increased the difficulty of PoW production, similar to Bitcoin, its mining cycle will be longer, and the final computing power scale will be larger. The second, the combination of PoW and stablecoins. Algorithmic stablecoins have failed one after another because they cannot achieve large-scale, decentralization, and stability at the same time. PoW solves the problem of decentralization and large-scale effectively (as Bitcoin does), so how to maintain its purchasing power stability? Currently, there are two directions. One is to use three PoW coins, such as Hacash, to adjust stability in a decentralized way, but it cannot be stably pegged to fiat currency, only relative stability of purchasing power can be achieved. The other is to use PoS governance, such as Meter, to adjust stability. However, PoS governance coins are issued by officials, so the management based on PoS is actually centralized.The third one, Combination of PoW and AI. The rise of AIGC has shown the trend of AI in the future. The operation of large models requires massive computing power, so the opportunities can only be monopolized by large companies. Therefore, the combination of PoW and AI can break this situation. By using PoW for mining and AI model calculation, a decentralized large model network can be formed. Projects in this direction include Bittensor and Tromero. However, finding applications for PoW is very difficult at the technical level. Because the effective operation of blockchain requires a smooth computing power curve, while the algorithmic difficulty of solving practical problems is discrete and abrupt, and the validity of evaluation results depends on manual decisions, which will inevitably rely on centralized solutions in the end. For example, Bittensor uses PoW token staking for decision-making.

The fourth one, Combination of PoW and Bitcoin. This innovative combination is the Bitcoin unidirectional transfer proposed by Hacash. The purpose is to compensate for the risks after transferring Bitcoin by using one of the PoW coins. Its value and driving force are similar to the adjusting of ancient gold, silver, and copper in the Hacash three coin system. If the unidirectional transfer of Bitcoin is successful, it is very likely that new PoW projects such as Litecoin unidirectional transfer will emerge, which may be the next explosion point in the narrative of PoW projects.

Why is the PoW mechanism considered outdated?

We can see that the unique value and innovative opportunities of PoW are still continuing. But why does the crypto industry consider PoW outdated?

The main reason is that PoW lacks the explosive point (mainly ICO) obtained by Ethereum, which has led Ethereum to lead the industry's development. At the same time, in order to prove the correctness of PoS, intentionally guiding everyone to compare PoW and PoS on a single ledger consensus level. But if we look at it from the perspective of the mechanism, the value of the PoS mechanism mainly relies on the innovation brought by Ethereum smart contracts, and is not directly related to PoS itself. The failure of the former PoS chain Peercoin is sufficient to prove this.

In addition to the lack of an explosive point for PoW and the attack on the single dimension of the ledger consensus level caused by the later PoS mechanism, there are also the following 5 reasons:

1. Pursuit of new narratives. The PoW mechanism emerged with Bitcoin at the beginning of the industry, and most newcomers in the crypto industry are attracted by the current trendy hotspots and pay little attention to the old.

2. Energy consumption. PoW is misunderstood as unnecessary waste of energy, leading to resistance from some people.

3. Innovation difficulties. Innovations based on PoW are more fundamental and difficult, and are strongly related to economics or economic models. There are not many teams capable of making differentiated and meaningful improvements.

4. PoW is not conducive to project parties. The nature of the mechanism is closely related to the fairness of token distribution, which is beneficial to the community but becomes an obstacle for project parties to be profit-driven. This leads to few teams having the motivation to do PoW-related projects.

5. PoW is not conducive to capital. After years of development, the participation of venture capital has greatly increased and even become the dominant force in most projects. The token cost of PoW mechanism is not conducive to quick capital exit.

The above 5 points are the main reasons why the PoW mechanism is considered outdated. However, based on PoW, Bitcoin has always been the top value in the market and there are constantly emerging PoW projects that have performed excellently, constantly proving to everyone the significance of expending energy to maintain the operation of the blockchain, and that the success of PoW is not solely limited to Bitcoin. The opportunity for PoW still exists, what is needed is for more people to re-examine and pay attention to PoW, and to innovate based on PoW.