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What to Do After You Graduate From Law School

Life after law school can be an exciting time as you look forward to your new career. There are plenty of opportunities available to those with a JD. Some avenues to consider include practicing law at a firm, specializing as an attorney in a field like patents, contracts, immigration (and many more), working as general counsel in-house at a corporation, or even pursuing a career in government.

The path you choose depends on the type of law you studied, your interests, and past experiences. According to the Bureau of Labor Statistics (BLS), the median salary for lawyers in 2020 was $126,930 annually.

Once you find your first post-law school gig, you may also have to start thinking about repaying any law school loans.

Finding Jobs After Law School

After getting a law degree, what to do really depends on why you decided to go to law school in the first place. Did you have dreams of working at a major law firm, becoming a public defender, or going solo with your own practice?

Maybe you don’t even want to practice law and would rather apply your new skills to a relevant career, or, continue to further your education even more. If you are considering what to do after law school, you can start by examining what workplace environment you find the most exciting and attainable.

Landing at a Law Firm

A law firm is an obvious choice for where to work after getting your JD. But the size, location, and culture of the law firm can greatly impact your experience and job satisfaction. Attorneys working at smaller firms may offer stronger partnership prospects than larger law firms. However, depending on location, the pay could be comparatively lower, and your training may come in the form of on-the-job experience.

While the path to promotion may be longer at a larger firm, they may have more resources and higher salary. Depending on your preferences and career interests, a major law firm with a big name might be a better fit to help you find your specialty.

Considering a Clerkship

A clerkship is an important career milestone for many attorneys. Usually taking place under the guidance of a certain judge, a clerkship allows law school graduates to see the inner workings of the legal system. Many are considered prestigious resume boosters, and offer valuable first-hand experience working under a judge and a leg up on networking from the start.

There are federal and state court clerkships, but federal opportunities like with Supreme Court or circuit court judges can be more difficult to secure because of their prestige. But state clerkships can also be beneficial, especially if you plan on practicing in the local area.

Getting an Advanced Degree

If you have a desire to specialize in a specific field of law, staying in school to get a post-JD degree is another avenue to consider after getting a law degree.

You might want to pursue this type of degree after having some relevant work experience, which can help you first figure out what particular field of law you want to study. These specialty degrees range from Air and Space Law, Sports Law, Global Food Law, even Cannabis Law and more.

Alternative Careers Outside Law

Pivoting after law school to a different career is another option to consider when looking at jobs. If you, like many, have graduated with six-figures worth of student debt, you’ll obviously want to find a steady job so you can make regular student loan payments.

Other jobs that may fit with the skill set you curated in law school may include jobs such as: political advisor, journalist, lobbyist, and teacher.

Tackling Law School Debt

Depending on your earning potential and chosen career path, it might make sense for you to aggressively pay off your law school debt in 10 years or less, or try to maximize your law school loan forgiveness opportunities.

In order to make your degree count towards your personal and professional goals, figuring out how to approach your debt is a key part of what to do after law school.

Ready to tackle your law school debt?
Refinancing your student loans
could help you pay it off faster.


Making Payments While Still in School

While the government does not require you to make payments on most federal student loans while still in school, you could consider paying the amount of interest that builds up each month to help keep your student loan debt from growing.

Whether you need to pick up a side hustle or prioritize how much you save, making at least interest payments on your student loans while still in school can help reduce the amount of interest that will capitalize on your student loans. This can ultimately reduce the amount of interest that accrues, and help set you up for success after law school.

Sticking to Budget Basics

After your law degree, it can be wise to take stock of your budget and work to balance your goals for savings, emergency funds, credit card payments, and student loans. According to the American Bar Associations 2020 Law School Student Loan Debt Survey, 75% of students had at least $100,000 in student loan debt after graduation.

Ultimately, you’ll likely want to pick a student loan repayment plan that works for your personal budget, no matter what jobs after law school you are considering. You may decide to pay down debt while also building up a basic emergency fund as part of your financial foundation.

Recommended: How Much Money Should Be in Your Emergency Fund?

Refinancing Law School Loans

Refinancing your law school loans means that a private lender will issue one new loan that effectively pays off your existing student loans. This new loan comes with new terms, ideally with a lower interest rate or shorter repayment period. Instead of paying multiple student loans, such as from undergraduate and graduate school, there is only one new loan to pay off.

Refinancing federal student loans means that you will not be able to take advantage of benefits like income-driven repayment plans and Public Service Loan Forgiveness any longer. So it may not make sense if you are taking advantage of one of these benefits. But refinancing could be an option if you want to refinance private and federal loans, or are hoping to secure a lower interest rate on existing private student loans.

The Takeaway

Life after law school can mean something different for everyone. Whether you pursue a private practice, family law at a small firm, or corporate law at a large one, there are lots of career opportunities to pursue.

Law school may also mean taking on a significant amount of student loan debt. Refinancing could be an option that helps you spend less in interest over the life of the loan, if you’re able to qualify for a more competitive interest rate. If you’re interested in refinancing, consider SoFi. Refinancing with SoFi can be completed online and there are no application fees, origination fees, or prepayment penalties.

Learn more about refinancing your law school loans with SoFi.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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What Student Loan Repayment Plan Should You Choose? Take the Quiz

Federal student loans offer a set selection of repayment plans that borrowers can choose from. Federal student loan borrowers may be assigned a repayment plan when they begin loan repayment, but they can change their repayment plan at any time without any fees.

Choosing the right repayment plan may feel overwhelming, but understanding the repayment plans can help. In this article, we’ll review the repayment plans available to federal student loan borrowers, listed below, and student loan refinancing options.

Student loan repayment options for federal loans explored here include:

•   Standard Repayment Plan

•   Extended Repayment Plan

•   Graduated Repayment Plan

•   Income-driven repayment Plans

The Standard Repayment Plan is 10 years and usually has the highest monthly payments but allows borrowers to repay their loans in the shortest period of time, which may help the borrower pay less in accrued interest over the life of the loan.

The Extended Repayment plan stretches out the repayment period for up to 25 years. Payments can be either fixed or may increase gradually over time. This repayment plan may be worth considering for borrowers who cannot meet the monthly payments on the Standard Repayment Plan.

On the Graduated Repayment Plan, the repayment period is 10 years, but the monthly payments start out low and then increase every two years. This plan may be worth considering for borrowers who have a relatively low income now, but anticipate that their salary may increase substantially over time.

Income-driven repayment plans tie a borrower’s income to their monthly payments. These options may be worth considering for borrowers who are struggling to make payments under the other payment plans or who are pursuing Public Service Loan Forgiveness.

You can take this quiz to get a better understanding of each option and see example scenarios that could be similar to yours. Want to skip to the answers? Check out overviews of the different repayment plans below.

Student Loan Repayment Plan Options for Federal Student Loans

Standard Repayment Plan

The Standard Repayment Plan ​is essentially the default repayment plan for federal student loans. This plan extends repayment over up to 10 years and monthly payments are set at a fixed amount. The interest on the loan remains the same as when it was originally disbursed, because federal loans have fixed interest rates.

One of the benefits of the Standard Repayment plan is that it may save you money in interest over the life of your loan because, generally, you’ll pay back your loan in the shortest amount of time (10 years) compared to the other federal repayment plans (20 to 30 years).

A common challenge associated with the standard repayment plan is that payments can be too high for some borrowers to manage. Remember that this is the default option when it comes time to set up a repayment plan, so if you would prefer another option, you’ll need to choose one when the time comes to start repaying your loan(s).

Student Loans Eligible for the Standard Repayment Plan

The following federal loans are eligible for the Standard Repayment Plan:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Direct PLUS Loans

•   Direct Consolidation Loans

•   Subsidized Federal Stafford Loans

•   Unsubsidized Federal Stafford Loans

•   FFEL PLUS Loans

•   FFEL Consolidation Loans

Extended Repayment Plan

If payments are too high for you to manage on the standard 10-year repayment plan, you can choose the Extended Repayment Plan for your federal loans, where the term is up to 25 years and payments are generally lower than with the Standard and Graduated Repayment Plans. With this plan you can also choose between fixed or graduated payments.

If you’re eligible, an Extended Repayment Plan can provide significant relief if you are struggling to pay your monthly loan payments by lengthening your term and potentially lowering your monthly payments.

This can help keep you out of default (which is important!). But it is important to remember that lengthening your loan term usually means you will be paying significantly more interest over the life of the loan — because it will take you longer to pay off your loan — and it may not give you the lowest monthly payments, depending on your circumstances.

Student Loans Eligible for the Extended Repayment Plan

The following federal loans are eligible for the Extended Repayment Plan:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Direct PLUS Loans

•   Direct Consolidation Loans

•   Subsidized Federal Stafford Loans

•   Unsubsidized Federal Stafford Loans

•   FFEL PLUS Loans

•   FFEL Consolidation Loans

Graduated Repayment Plan

With this plan, you would still pay your federal student loans back over a 10- to 30-year period, with lower payments at the beginning of the term that gradually increase every two years.

The idea behind the Graduated Repayment Plan is that a borrower’s income will likely increase over time, but may not be much at the start of their career.

Of course, the income boost may not happen. With this plan, because interest keeps accruing on the outstanding principal balance over a longer period of time, even though you’re making payments, the longer you take to repay your loan(s), the more interest you’ll wind up paying in the end. (Remember, more payments with interest = more interest paid total.) More information about eligibility for the Graduated Repayment Plan may be found here .

Student Loans Eligible for the Graduated Repayment Plan

The following federal loans are eligible for the Graduated Repayment Plan:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Direct PLUS Loans

•   Direct Consolidation Loans

•   Subsidized Federal Stafford Loans

•   Unsubsidized Federal Stafford Loans

•   FFEL PLUS Loans

•   FFEL Consolidation Loans

Income-Driven Repayment Plans

Each of the three plans listed above (Standard, Extended, and Graduated) are considered traditional repayment plans. Income-Driven Repayment Plans , though, are different because the student loan payment amount is based upon the borrower’s income and family size.

To be eligible for an income-driven repayment plan, you’d need to go through a recertification process each year and, each year, your monthly payment could change (increase or decrease) based upon your current income and family size.

Maximum payments are set at 10% or 20% of what’s considered your discretionary income (the difference between 150% of the poverty guideline and your adjusted gross income), depending on the loan and the plan. And, there are multiple types of income-driven plans, including:

•   Income-Based Repayment Plan (IBR)

•   Pay As You Earn Repayment Plan (PAYE)

•   Revised Pay As You Earn Repayment Plan (REPAYE)

•   Income-Contingent Repayment Plan (ICR)

A significant advantage of using income-driven repayment plans is that your payment can be adjusted to accommodate a lower income. And, in most cases, if you choose one of these plans, any remaining balance after 20 or 25 years may be forgiven if repayment has been satisfactorily made.

Again, the longer you extend your loan term, the more payments (with interest) you’ll be making. Not all loans qualify for this type of program; you’ll need to be vigilant about recertifying for this repayment program and regularly provide updated info to the federal government and, if the remaining portion of the debt is forgiven, you may owe taxes on that dollar amount.

Visit the Federal Student Aid website to understand which federal loans are eligible for each type of Income-Driven Repayment Plan.

Another Option to Consider: Student Loan Refinancing

Refinancing student loans with a private lender, allows borrowers to consolidate (that is, combine) the loans. This can help make repayment convenient, because there will be just one monthly payment. And borrowers who qualify for a lower interest rate may be able to reduce the amount of money they spend in interest over the life of the loan.

You typically need a certain credit score to qualify, among other fairly standard lending qualifications (like income and employment verification, among other factors). Know that once federal student loans are refinanced with a private lender, they will become ineligible for federal repayment plans, programs like Public Service Loan Forgiveness and other borrower protections like deferment or forbearance.

Repayment Plans for Private Student Loans

The repayment plans for private student loans are set by the lender. If you have private student loans, review the loan terms or contact the lender directly to review the payment options available to you.

The Takeaway

Borrowers repaying federal student loans have three traditional repayment plans to choose from (Standard, Extended, and Graduated) and four Income-Driven Repayment Plans to choose from. When selecting a repayment plan, consider factors like your current income and expenses, potential future income, and career goals. For example, borrowers pursuing Public Service Loan Forgiveness will need to switch to an income-driven repayment plan.

At SoFi, potential borrowers may qualify for a lower interest rate on their student loans. Applicants who want to increase their cash flow, can select a longer term to lower their payments, keeping in mind that this may mean paying more in interest over the life of the loan. If the goal is to pay off debt more quickly and pay less back in interest overall, potential borrowers can pick a shorter term. Keep in mind that, as mentioned above, refinancing federal student loans eliminates them from federal borrower protections and benefits.

SoFi offers student loan refinancing options with absolutely no fees.

If you’ve decided to refinance your student loans, SoFi is here to help. Find out what rate you may pre-qualify for.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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How to Buy Dogecoin

How to Buy Dogecoin (DOGE)

Dogecoin may have started as a joke cryptocurrency, but it’s evolved into a very real digital asset. Like all cryptocurrencies, there are multiple ways that traders or investors can purchase DOGE.

There are two basic ways to buy DOGE: Through a cryptocurrency exchange, or through an online stock trading platform or application.

How to Buy Dogecoin in 4 Steps

Buying Dogecoin is a fairly simple process — it’s more or less the same process you would follow if you were trying to purchase Bitcoin or any other altcoins.

While this may seem complicated for crypto beginners, it’s a fairly straightforward process, whether you’re buying crypto to keep for the long-term or to spend right now.

Here’s a detailed walkthrough of each step:

1. Choose Where You Want to Buy Dogecoin

If you understand the basics of Dogecoin and are interested in buying DOGE, you’ll need to decide whether you’d like to use either a cryptocurrency exchange or an online trading platform. No matter which route you go, you’ll need to establish an account with the platform or exchange (if you don’t have one). That may require banking information (account numbers, etc.), addresses, phone numbers, email addresses, and in some cases, your Social Security number.

Crypto Exchanges

Crypto exchanges are platforms that allow interested parties to buy, sell, or trade different cryptocurrencies. They’re not all the same — some cryptos are available on some platforms, but not on others, for instance — and they tend to work like stock markets.

That is, traders and investors are exchanging cryptos, much like they would with stocks or bonds on the stock market. There are different types of exchanges, too, including centralized, decentralized, and hybrid exchanges.

A quick Google search will reveal plenty of them, if you’re interested in going this route.

Exchanges tend to have a large variety of crypto choices, are generally simple to use, and make it pretty easy to trade. However, some of them may have high fees for trading, and may not grant users complete control over their storage options. While nearly all exchanges will let you buy or sell crypto, some may support more advanced orders such as limit orders or margin trading.

Recommended: 12 Factors to Consider When Choosing a Cryptocurrency Exchange

Online Stock Trading Platforms

Aside from crypto exchanges, which can be used to buy Dogecoin, there are also stock trading apps — of which there are also many choices. And, again, a simple Google search will yield plenty of results, if you want to find a few options to start trading.

These trading apps generally work similarly to exchanges for end users. Essentially, it’s a matter of opening and funding an account, and executing the trade. But the apps and platforms in question are generally known for trading stocks, bonds, and ETFs rather than cryptocurrencies, as opposed to crypto exchanges.

They act as brokerages, in other words, and may charge a markup or fee for executing a trade.

That said, many of these apps have opened themselves up to crypto trading as demand has grown. And, for the most part, trading crypto on these platforms is a similar (if not the same) process as trading stocks.

As for the pros and cons of using these apps, it’ll depend on the specific platform. Some may require minimum deposits to open an account, for example. Others will charge fees of varying degrees (or none at all), and some will be less user-friendly than others. On some brokerage platforms, you can’t withdraw your crypto directly from the account, instead, you’d need to sell your assets to be able to withdraw the balance to other accounts.

It’ll take a little research and experimentation to find one that you like, if you choose to use one of these apps to buy Dogecoin or other cryptos.

2. Setup a Payment Method

Once you’ve decided where you want to buy Dogecoin, it’s time to get down to brass tacks: Laying the lines to execute a transaction. That means setting up a method to pay for your new Dogecoin holdings.

Depending on whether you choose an exchange or a trading app, the specifics of this step will vary. But in general terms, it’s connecting a way to make a payment to the exchange or brokerage — usually by connecting a credit or debit card, or a bank account — to your account, so that you can make purchases or trades.

3. Purchase Dogecoin

At this point, it’s simply a matter of executing the transaction to buy Dogecoin. This process will vary depending on the exchange or app you’re using. But it’s usually as simple as inputting the amount of Dogecoin you want to buy, and hitting the “purchase” button to initiate the purchase.

4. Safely Store Your Dogecoin

Securely storing your cryptocurrencies isn’t quite as simple as holding a stock or ETF. Both exchanges and crypto wallets have become targets for hackers, so it’s important to make security a priority after you’ve purchased crypto.

Depending on whether you’ve used an exchange or an online trading platform to buy Dogecoin, your storage options vary. Crypto storage is a deep topic all on its own, but what you need to know is that specific exchanges and platforms may store your coins differently.

Recommended: What is a Crypto Wallet? A Guide to Safely Storing Crypto

Platforms may store your Dogecoin in either “hot” or “cold” wallets. The essential difference is that “cold” storage is offline — making it more difficult for hackers, or other bad actors, to access. Conversely, coins held in “hot” storage remain online, and can be accessed quickly to facilitate trades.

Some platforms use a combination of hot and cold storage. Again, it depends on the specific platform you choose.

You can also transfer your Dogecoin to your own digital wallet, of which there are many to choose from with varying degrees of security and features. You can also choose from DOGE-specific wallets or those that allow you to store multiple types of cryptocurrency.

Recommended: What Companies Accept Dogecoin and Other Cryptos as Payment?

The Takeaway

The process of purchasing DOGE is similar to that of buying other cryptocurrencies. Once you’ve decided whether you want to go through a crypto exchange or a brokerage platform, you simply need to create an account and execute the purchase. Keep in mind that like all cryptocurrencies, DOGE is a risky investment with extreme price volatility.

If you’re planning to go the brokerage route, a great way to get started is by opening an account on the SoFi Invest brokerage platform. You can use it to purchase not only Dogecoin and other cryptocurrencies, but also stocks and exchange-traded funds. (DOGE is currently not available in New York.)

Photo credit: iStock/StockRocket


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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What is Proof of Work? Definition & Guide

What is Proof of Work? Definition & Guide

Cryptocurrencies are known for their high level of security — and in many cases, that security is made possible by a proof-of-work (PoW) algorithm. The proof-of-work consensus algorithm is currently used by Bitcoin, Ethereum, Dogecoin, Litecoin, and many other cryptos (although the Ethereum network is transitioning to a different algorithm known as proof-of-stake).

Proof of work largely serves to prevent double spending, which is when the same coins are spent more than once. Digital currencies are prone to double spending since they don’t have any material exchange — it can seem easy and tempting to forge transactions that are just numbers on a screen.

Proof of work and the blockchain keep track of every transaction to prevent this from happening. The algorithm is extremely secure and complicated, making it nearly impossible to double-spend Bitcoin and other PoW cryptocurrencies.

The concept of proof of work was originally developed to prevent denial of service attacks (DDoS) and spam emails, but in 2004 Hal Finney adapted it for use in blockchain digital currency networks. Bitcoin was the first cryptocurrency to put the idea to use.

Recommended: What Is Blockchain Technology and How Does it Work?

How Proof of Work (PoW) Works

Proof of work is basically what it sounds like: proof that work has been done. The “work” is the conversion of electrical energy into “weight” on the Bitcoin blockchain through the use of computing power and a complicated mathematical calculation. Overall, this work makes forging transactions on the blockchain prohibitively expensive and difficult.

The mathematical calculation involves a hash function, which in turn generates a long string of unique numbers. This helps validate transactions and create the next block on the blockchain. Each block contains information about a specific Bitcoin transaction. As the transactions are validated and recorded on the chain, this ensures that double spending hasn’t occurred. Once information has been stored on the blockchain, it cannot be changed or deleted. This helps to keep the private keys of Bitcoin owners secure and anonymous.

Miners’ Role in Proof of Work

Bitcoin miners (nodes) run specialized machinery that works to solve the equation as quickly as possible, and they are rewarded with new bitcoins depending on how much computing power, or hash power, they contribute to keeping the network running.

The objective of PoW is to extend the blockchain. The miner that creates the longest chain gets the reward as well as the transaction fees contained in the block. The best way to solve the calculation is through trial and error, so the more computing power a miner can put into doing as many trials as possible as quickly as possible, the more likely they are to win the block reward.

Why Proof of Work is Needed

Proof of work ensures that double spending doesn’t occur in digital asset networks. It provides security and a record of transactions as well as an incentive for miners to keep the network running.

Proof of work is also needed because Bitcoin has no central authority (vs. a bank, for example). A central authority would keep track of transactions as well as issue new bitcoins to the network. Instead of this, the network of miners keeps track of the blockchain.

Proof of work also adds value to Bitcoin because it shows that people are willing to convert energy, a material resource, as well as fiat currency, into the production of the cryptocurrency. This provides more confidence for those who are interested in investing in Bitcoin.

Pros and Cons of Proof of Work

There are several reasons why PoW is used for Bitcoin and other popular cryptocurrencies, but there are arguments against it as well.

Pros of Proof of Work

•   PoW helps keep the network secure

•   It prevents double spending

•   It adds value to the network through the use of energy

•   It is an integral part of the decentralized authority system of the network

Cons of Proof of Work

•   It requires computational power, which uses a significant amount of electricity

•   PoW has low performance capacity for the execution of on-chain transactions

•   Getting involved in mining requires a large upfront equipment cost and ongoing maintenance and electricity costs

•   There is a risk that miners may group together to attack the network, undermining its decentralized nature

Which Cryptocurrencies Use Proof of Work?

Proof-of-work is the most commonly used algorithm for cryptocurrency networks. However, some cryptocurrencies use other algorithms, such as proof of stake. The following cryptocurrencies use proof of work:

•   Bitcoin (BTC)

•   Ethereum (ETH) (for now until it moves to proof-of-stake)

•   Bitcoin Cash (BCH)

•   Litecoin (LTC)

•   Monero (XMR)

•   Dogecoin (DOGE)

•   Ethereum Classic (ETC)

•   Bitcoin SV

•   Dash

•   Decred

Proof of Work vs. Proof of Stake

Since PoW has some downsides, developers have been working on many other types of consensus algorithms for cryptocurrency networks. One of the most anticipated is proof of stake (PoS).

Rather than miners, PoS uses validators who are chosen to create blocks based on how many coins they hold, rather than having to compete to create the blocks. Proof of stake rewards validators that hold the most coins with the ability to mine blocks and validate transactions.

The benefit of PoS is that it uses a lot less electricity. However, PoS rewards nodes for holding tokens, resulting in hoarding rather than use of the crypto. PoS is also vulnerable to 51% attacks, where an individual crypto miner or group of miners gets control of more than 50% of a network’s blockchain.

The Takeaway

Proof of work is the original way to secure blockchains and protect cryptocurrency from being double-spent and potentially devalued. Bitcoin uses the PoW consensus algorithm, as do a number of other cryptocurrencies.

If you’re interested in trading cryptocurrencies, SoFi Invest® makes it easy. You can choose from more than 20 different cryptos, including Bitcoin, Solana, Enjin Coin, Cardano, Litecoin, and more.

Find out how to start trading crypto with SoFi Invest.

Photo credit: iStock/MesquitaFMS


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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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