diff --git a/examples/democoin/app/app.go b/examples/democoin/app/app.go
index 2fffb83241..2ee79bd5bf 100644
--- a/examples/democoin/app/app.go
+++ b/examples/democoin/app/app.go
@@ -19,6 +19,7 @@ import (
 
 	"github.com/cosmos/cosmos-sdk/examples/democoin/types"
 	"github.com/cosmos/cosmos-sdk/examples/democoin/x/cool"
+	"github.com/cosmos/cosmos-sdk/examples/democoin/x/pow"
 	"github.com/cosmos/cosmos-sdk/examples/democoin/x/sketchy"
 )
 
@@ -34,6 +35,7 @@ type DemocoinApp struct {
 	// keys to access the substores
 	capKeyMainStore    *sdk.KVStoreKey
 	capKeyAccountStore *sdk.KVStoreKey
+	capKeyPowStore     *sdk.KVStoreKey
 	capKeyIBCStore     *sdk.KVStoreKey
 	capKeyStakingStore *sdk.KVStoreKey
 
@@ -48,6 +50,7 @@ func NewDemocoinApp(logger log.Logger, dbs map[string]dbm.DB) *DemocoinApp {
 		cdc:                MakeCodec(),
 		capKeyMainStore:    sdk.NewKVStoreKey("main"),
 		capKeyAccountStore: sdk.NewKVStoreKey("acc"),
+		capKeyPowStore:     sdk.NewKVStoreKey("pow"),
 		capKeyIBCStore:     sdk.NewKVStoreKey("ibc"),
 		capKeyStakingStore: sdk.NewKVStoreKey("stake"),
 	}
@@ -61,20 +64,23 @@ func NewDemocoinApp(logger log.Logger, dbs map[string]dbm.DB) *DemocoinApp {
 	// add handlers
 	coinKeeper := bank.NewCoinKeeper(app.accountMapper)
 	coolKeeper := cool.NewKeeper(app.capKeyMainStore, coinKeeper)
+	powKeeper := pow.NewKeeper(app.capKeyPowStore, pow.NewPowConfig("pow", int64(1)), coinKeeper)
 	ibcMapper := ibc.NewIBCMapper(app.cdc, app.capKeyIBCStore)
 	stakeKeeper := simplestake.NewKeeper(app.capKeyStakingStore, coinKeeper)
 	app.Router().
 		AddRoute("bank", bank.NewHandler(coinKeeper)).
 		AddRoute("cool", cool.NewHandler(coolKeeper)).
+		AddRoute("pow", powKeeper.Handler).
 		AddRoute("sketchy", sketchy.NewHandler()).
 		AddRoute("ibc", ibc.NewHandler(ibcMapper, coinKeeper)).
 		AddRoute("simplestake", simplestake.NewHandler(stakeKeeper))
 
 	// initialize BaseApp
 	app.SetTxDecoder(app.txDecoder)
-	app.SetInitChainer(app.initChainerFn(coolKeeper))
+	app.SetInitChainer(app.initChainerFn(coolKeeper, powKeeper))
 	app.MountStoreWithDB(app.capKeyMainStore, sdk.StoreTypeIAVL, dbs["main"])
 	app.MountStoreWithDB(app.capKeyAccountStore, sdk.StoreTypeIAVL, dbs["acc"])
+	app.MountStoreWithDB(app.capKeyPowStore, sdk.StoreTypeIAVL, dbs["pow"])
 	app.MountStoreWithDB(app.capKeyIBCStore, sdk.StoreTypeIAVL, dbs["ibc"])
 	app.MountStoreWithDB(app.capKeyStakingStore, sdk.StoreTypeIAVL, dbs["staking"])
 	// NOTE: Broken until #532 lands
@@ -95,16 +101,18 @@ func MakeCodec() *wire.Codec {
 	const msgTypeIssue = 0x2
 	const msgTypeQuiz = 0x3
 	const msgTypeSetTrend = 0x4
-	const msgTypeIBCTransferMsg = 0x5
-	const msgTypeIBCReceiveMsg = 0x6
-	const msgTypeBondMsg = 0x7
-	const msgTypeUnbondMsg = 0x8
+	const msgTypeMine = 0x5
+	const msgTypeIBCTransferMsg = 0x6
+	const msgTypeIBCReceiveMsg = 0x7
+	const msgTypeBondMsg = 0x8
+	const msgTypeUnbondMsg = 0x9
 	var _ = oldwire.RegisterInterface(
 		struct{ sdk.Msg }{},
 		oldwire.ConcreteType{bank.SendMsg{}, msgTypeSend},
 		oldwire.ConcreteType{bank.IssueMsg{}, msgTypeIssue},
 		oldwire.ConcreteType{cool.QuizMsg{}, msgTypeQuiz},
 		oldwire.ConcreteType{cool.SetTrendMsg{}, msgTypeSetTrend},
+		oldwire.ConcreteType{pow.MineMsg{}, msgTypeMine},
 		oldwire.ConcreteType{ibc.IBCTransferMsg{}, msgTypeIBCTransferMsg},
 		oldwire.ConcreteType{ibc.IBCReceiveMsg{}, msgTypeIBCReceiveMsg},
 		oldwire.ConcreteType{simplestake.BondMsg{}, msgTypeBondMsg},
@@ -143,7 +151,7 @@ func (app *DemocoinApp) txDecoder(txBytes []byte) (sdk.Tx, sdk.Error) {
 }
 
 // custom logic for democoin initialization
-func (app *DemocoinApp) initChainerFn(coolKeeper cool.Keeper) sdk.InitChainer {
+func (app *DemocoinApp) initChainerFn(coolKeeper cool.Keeper, powKeeper pow.Keeper) sdk.InitChainer {
 	return func(ctx sdk.Context, req abci.RequestInitChain) abci.ResponseInitChain {
 		stateJSON := req.AppStateBytes
 
@@ -164,7 +172,13 @@ func (app *DemocoinApp) initChainerFn(coolKeeper cool.Keeper) sdk.InitChainer {
 		}
 
 		// Application specific genesis handling
-		err = coolKeeper.InitGenesis(ctx, stateJSON)
+		err = coolKeeper.InitGenesis(ctx, genesisState.CoolGenesis)
+		if err != nil {
+			panic(err) // TODO https://github.com/cosmos/cosmos-sdk/issues/468
+			//	return sdk.ErrGenesisParse("").TraceCause(err, "")
+		}
+
+		err = powKeeper.InitGenesis(ctx, genesisState.PowGenesis)
 		if err != nil {
 			panic(err) // TODO https://github.com/cosmos/cosmos-sdk/issues/468
 			//	return sdk.ErrGenesisParse("").TraceCause(err, "")
diff --git a/examples/democoin/app/app_test.go b/examples/democoin/app/app_test.go
index bf2ddc232f..1cc56bd6bf 100644
--- a/examples/democoin/app/app_test.go
+++ b/examples/democoin/app/app_test.go
@@ -11,6 +11,7 @@ import (
 
 	"github.com/cosmos/cosmos-sdk/examples/democoin/types"
 	"github.com/cosmos/cosmos-sdk/examples/democoin/x/cool"
+	"github.com/cosmos/cosmos-sdk/examples/democoin/x/pow"
 	sdk "github.com/cosmos/cosmos-sdk/types"
 	"github.com/cosmos/cosmos-sdk/x/auth"
 	"github.com/cosmos/cosmos-sdk/x/bank"
@@ -71,6 +72,7 @@ func loggerAndDBs() (log.Logger, map[string]dbm.DB) {
 	dbs := map[string]dbm.DB{
 		"main":    dbm.NewMemDB(),
 		"acc":     dbm.NewMemDB(),
+		"pow":     dbm.NewMemDB(),
 		"ibc":     dbm.NewMemDB(),
 		"staking": dbm.NewMemDB(),
 	}
@@ -238,6 +240,58 @@ func TestSendMsgWithAccounts(t *testing.T) {
 	assert.Equal(t, sdk.CodeOK, res.Code, res.Log)
 }
 
+func TestMineMsg(t *testing.T) {
+	bapp := newDemocoinApp()
+
+	// Construct genesis state
+	// Construct some genesis bytes to reflect democoin/types/AppAccount
+	coins := sdk.Coins{}
+	baseAcc := auth.BaseAccount{
+		Address: addr1,
+		Coins:   coins,
+	}
+	acc1 := &types.AppAccount{baseAcc, "foobart"}
+
+	// Construct genesis state
+	genesisState := map[string]interface{}{
+		"accounts": []*types.GenesisAccount{
+			types.NewGenesisAccount(acc1),
+		},
+		"cool": map[string]string{
+			"trend": "ice-cold",
+		},
+		"pow": map[string]uint64{
+			"difficulty": 1,
+			"count":      0,
+		},
+	}
+	stateBytes, err := json.MarshalIndent(genesisState, "", "\t")
+	require.Nil(t, err)
+
+	// Initialize the chain (nil)
+	vals := []abci.Validator{}
+	bapp.InitChain(abci.RequestInitChain{vals, stateBytes})
+	bapp.Commit()
+
+	// A checkTx context (true)
+	ctxCheck := bapp.BaseApp.NewContext(true, abci.Header{})
+	res1 := bapp.accountMapper.GetAccount(ctxCheck, addr1)
+	assert.Equal(t, acc1, res1)
+
+	// Mine and check for reward
+	mineMsg1 := pow.GenerateMineMsg(addr1, 1, 2)
+	SignCheckDeliver(t, bapp, mineMsg1, 0, true)
+	CheckBalance(t, bapp, "1pow")
+	// Mine again and check for reward
+	mineMsg2 := pow.GenerateMineMsg(addr1, 2, 3)
+	SignCheckDeliver(t, bapp, mineMsg2, 1, true)
+	CheckBalance(t, bapp, "2pow")
+	// Mine again - should be invalid
+	SignCheckDeliver(t, bapp, mineMsg2, 1, false)
+	CheckBalance(t, bapp, "2pow")
+
+}
+
 func TestQuizMsg(t *testing.T) {
 	bapp := newDemocoinApp()
 
diff --git a/examples/democoin/cmd/democoind/main.go b/examples/democoin/cmd/democoind/main.go
index 076eda248b..df94e2c323 100644
--- a/examples/democoin/cmd/democoind/main.go
+++ b/examples/democoin/cmd/democoind/main.go
@@ -55,6 +55,10 @@ func generateApp(rootDir string, logger log.Logger) (abci.Application, error) {
 	if err != nil {
 		return nil, err
 	}
+	dbPow, err := dbm.NewGoLevelDB("democoin-pow", filepath.Join(rootDir, "data"))
+	if err != nil {
+		return nil, err
+	}
 	dbIBC, err := dbm.NewGoLevelDB("democoin-ibc", filepath.Join(rootDir, "data"))
 	if err != nil {
 		return nil, err
@@ -66,6 +70,7 @@ func generateApp(rootDir string, logger log.Logger) (abci.Application, error) {
 	dbs := map[string]dbm.DB{
 		"main":    dbMain,
 		"acc":     dbAcc,
+		"pow":     dbPow,
 		"ibc":     dbIBC,
 		"staking": dbStaking,
 	}
diff --git a/examples/democoin/types/account.go b/examples/democoin/types/account.go
index 35b37c7b2f..b5d5a0d034 100644
--- a/examples/democoin/types/account.go
+++ b/examples/democoin/types/account.go
@@ -4,6 +4,9 @@ import (
 	sdk "github.com/cosmos/cosmos-sdk/types"
 	"github.com/cosmos/cosmos-sdk/wire"
 	"github.com/cosmos/cosmos-sdk/x/auth"
+
+	"github.com/cosmos/cosmos-sdk/examples/democoin/x/cool"
+	"github.com/cosmos/cosmos-sdk/examples/democoin/x/pow"
 )
 
 var _ sdk.Account = (*AppAccount)(nil)
@@ -41,7 +44,9 @@ func GetAccountDecoder(cdc *wire.Codec) sdk.AccountDecoder {
 
 // State to Unmarshal
 type GenesisState struct {
-	Accounts []*GenesisAccount `json:"accounts"`
+	Accounts    []*GenesisAccount `json:"accounts"`
+	PowGenesis  pow.PowGenesis    `json:"pow"`
+	CoolGenesis cool.CoolGenesis  `json:"cool"`
 }
 
 // GenesisAccount doesn't need pubkey or sequence
diff --git a/examples/democoin/x/cool/keeper.go b/examples/democoin/x/cool/keeper.go
index 1bf342fdc2..0a4fc81e1c 100644
--- a/examples/democoin/x/cool/keeper.go
+++ b/examples/democoin/x/cool/keeper.go
@@ -1,17 +1,10 @@
 package cool
 
 import (
-	"encoding/json"
-
 	sdk "github.com/cosmos/cosmos-sdk/types"
 	"github.com/cosmos/cosmos-sdk/x/bank"
 )
 
-// Cool genesis state, containing the genesis trend
-type GenesisState struct {
-	trend string
-}
-
 // Keeper - handlers sets/gets of custom variables for your module
 type Keeper struct {
 	ck bank.CoinKeeper
@@ -49,11 +42,7 @@ func (k Keeper) CheckTrend(ctx sdk.Context, guessedTrend string) bool {
 }
 
 // InitGenesis - store the genesis trend
-func (k Keeper) InitGenesis(ctx sdk.Context, data json.RawMessage) error {
-	var state GenesisState
-	if err := json.Unmarshal(data, &state); err != nil {
-		return err
-	}
-	k.setTrend(ctx, state.trend)
+func (k Keeper) InitGenesis(ctx sdk.Context, data CoolGenesis) error {
+	k.setTrend(ctx, data.Trend)
 	return nil
 }
diff --git a/examples/democoin/x/cool/types.go b/examples/democoin/x/cool/types.go
index a3fa6ca48e..e24c363ace 100644
--- a/examples/democoin/x/cool/types.go
+++ b/examples/democoin/x/cool/types.go
@@ -15,6 +15,11 @@ type SetTrendMsg struct {
 	Cool   string
 }
 
+// Genesis state - specify genesis trend
+type CoolGenesis struct {
+	Trend string `json:"trend"`
+}
+
 // New cool message
 func NewSetTrendMsg(sender sdk.Address, cool string) SetTrendMsg {
 	return SetTrendMsg{
diff --git a/examples/democoin/x/pow/commands/tx.go b/examples/democoin/x/pow/commands/tx.go
new file mode 100644
index 0000000000..77cfa621c6
--- /dev/null
+++ b/examples/democoin/x/pow/commands/tx.go
@@ -0,0 +1,66 @@
+package commands
+
+import (
+	"fmt"
+	"strconv"
+
+	"github.com/pkg/errors"
+	"github.com/spf13/cobra"
+
+	"github.com/cosmos/cosmos-sdk/client/context"
+
+	"github.com/cosmos/cosmos-sdk/examples/democoin/x/pow"
+	"github.com/cosmos/cosmos-sdk/wire"
+)
+
+func MineCmd(cdc *wire.Codec) *cobra.Command {
+	return &cobra.Command{
+		Use:   "mine [difficulty] [count] [nonce] [solution]",
+		Short: "Mine some coins with proof-of-work!",
+		RunE: func(cmd *cobra.Command, args []string) error {
+			if len(args) != 4 {
+				return errors.New("You must provide a difficulty, a solution, and a nonce (in that order)")
+			}
+
+			// get from address and parse arguments
+
+			ctx := context.NewCoreContextFromViper()
+
+			from, err := ctx.GetFromAddress()
+			if err != nil {
+				return err
+			}
+
+			difficulty, err := strconv.ParseUint(args[0], 0, 64)
+			if err != nil {
+				return err
+			}
+
+			count, err := strconv.ParseUint(args[1], 0, 64)
+			if err != nil {
+				return err
+			}
+
+			nonce, err := strconv.ParseUint(args[2], 0, 64)
+			if err != nil {
+				return err
+			}
+
+			solution := []byte(args[3])
+
+			msg := pow.NewMineMsg(from, difficulty, count, nonce, solution)
+
+			// get account name
+			name := ctx.FromAddressName
+
+			// build and sign the transaction, then broadcast to Tendermint
+			res, err := ctx.SignBuildBroadcast(name, msg, cdc)
+			if err != nil {
+				return err
+			}
+
+			fmt.Printf("Committed at block %d. Hash: %s\n", res.Height, res.Hash.String())
+			return nil
+		},
+	}
+}
diff --git a/examples/democoin/x/pow/errors.go b/examples/democoin/x/pow/errors.go
new file mode 100644
index 0000000000..b44eb93d6d
--- /dev/null
+++ b/examples/democoin/x/pow/errors.go
@@ -0,0 +1,82 @@
+package pow
+
+import (
+	sdk "github.com/cosmos/cosmos-sdk/types"
+)
+
+type CodeType = sdk.CodeType
+
+const (
+	CodeInvalidDifficulty     CodeType = 201
+	CodeNonexistentDifficulty CodeType = 202
+	CodeNonexistentReward     CodeType = 203
+	CodeNonexistentCount      CodeType = 204
+	CodeInvalidProof          CodeType = 205
+	CodeNotBelowTarget        CodeType = 206
+	CodeInvalidCount          CodeType = 207
+	CodeUnknownRequest        CodeType = sdk.CodeUnknownRequest
+)
+
+func codeToDefaultMsg(code CodeType) string {
+	switch code {
+	case CodeInvalidDifficulty:
+		return "Insuffient difficulty"
+	case CodeNonexistentDifficulty:
+		return "Nonexistent difficulty"
+	case CodeNonexistentReward:
+		return "Nonexistent reward"
+	case CodeNonexistentCount:
+		return "Nonexistent count"
+	case CodeInvalidProof:
+		return "Invalid proof"
+	case CodeNotBelowTarget:
+		return "Not below target"
+	case CodeInvalidCount:
+		return "Invalid count"
+	case CodeUnknownRequest:
+		return "Unknown request"
+	default:
+		return sdk.CodeToDefaultMsg(code)
+	}
+}
+
+func ErrInvalidDifficulty(msg string) sdk.Error {
+	return newError(CodeInvalidDifficulty, msg)
+}
+
+func ErrNonexistentDifficulty() sdk.Error {
+	return newError(CodeNonexistentDifficulty, "")
+}
+
+func ErrNonexistentReward() sdk.Error {
+	return newError(CodeNonexistentReward, "")
+}
+
+func ErrNonexistentCount() sdk.Error {
+	return newError(CodeNonexistentCount, "")
+}
+
+func ErrInvalidProof(msg string) sdk.Error {
+	return newError(CodeInvalidProof, msg)
+}
+
+func ErrNotBelowTarget(msg string) sdk.Error {
+	return newError(CodeNotBelowTarget, msg)
+}
+
+func ErrInvalidCount(msg string) sdk.Error {
+	return newError(CodeInvalidCount, msg)
+}
+
+func msgOrDefaultMsg(msg string, code CodeType) string {
+	if msg != "" {
+		return msg
+	} else {
+		return codeToDefaultMsg(code)
+	}
+}
+
+func newError(code CodeType, msg string) sdk.Error {
+	msg = msgOrDefaultMsg(msg, code)
+	return sdk.NewError(code, msg)
+}
diff --git a/examples/democoin/x/pow/handler.go b/examples/democoin/x/pow/handler.go
new file mode 100644
index 0000000000..d1a691139d
--- /dev/null
+++ b/examples/democoin/x/pow/handler.go
@@ -0,0 +1,42 @@
+package pow
+
+import (
+	"reflect"
+
+	sdk "github.com/cosmos/cosmos-sdk/types"
+)
+
+func (pk Keeper) Handler(ctx sdk.Context, msg sdk.Msg) sdk.Result {
+	switch msg := msg.(type) {
+	case MineMsg:
+		return handleMineMsg(ctx, pk, msg)
+	default:
+		errMsg := "Unrecognized pow Msg type: " + reflect.TypeOf(msg).Name()
+		return sdk.ErrUnknownRequest(errMsg).Result()
+	}
+}
+
+func handleMineMsg(ctx sdk.Context, pk Keeper, msg MineMsg) sdk.Result {
+
+	// precondition: msg has passed ValidateBasic
+
+	newDiff, newCount, err := pk.CheckValid(ctx, msg.Difficulty, msg.Count)
+	if err != nil {
+		return err.Result()
+	}
+
+	// commented for now, makes testing difficult
+	// TODO figure out a better test method that allows early CheckTx return
+	/*
+		if ctx.IsCheckTx() {
+			return sdk.Result{} // TODO
+		}
+	*/
+
+	err = pk.ApplyValid(ctx, msg.Sender, newDiff, newCount)
+	if err != nil {
+		return err.Result()
+	}
+
+	return sdk.Result{}
+}
diff --git a/examples/democoin/x/pow/handler_test.go b/examples/democoin/x/pow/handler_test.go
new file mode 100644
index 0000000000..2de2853713
--- /dev/null
+++ b/examples/democoin/x/pow/handler_test.go
@@ -0,0 +1,55 @@
+package pow
+
+import (
+	"testing"
+
+	"github.com/stretchr/testify/assert"
+
+	abci "github.com/tendermint/abci/types"
+
+	sdk "github.com/cosmos/cosmos-sdk/types"
+	auth "github.com/cosmos/cosmos-sdk/x/auth"
+	bank "github.com/cosmos/cosmos-sdk/x/bank"
+)
+
+func TestPowHandler(t *testing.T) {
+	ms, capKey := setupMultiStore()
+
+	am := auth.NewAccountMapper(capKey, &auth.BaseAccount{})
+	ctx := sdk.NewContext(ms, abci.Header{}, false, nil)
+	config := NewPowConfig("pow", int64(1))
+	ck := bank.NewCoinKeeper(am)
+	keeper := NewKeeper(capKey, config, ck)
+
+	handler := keeper.Handler
+
+	addr := sdk.Address([]byte("sender"))
+	count := uint64(1)
+	difficulty := uint64(2)
+
+	err := keeper.InitGenesis(ctx, PowGenesis{uint64(1), uint64(0)})
+	assert.Nil(t, err)
+
+	nonce, proof := mine(addr, count, difficulty)
+	msg := NewMineMsg(addr, difficulty, count, nonce, proof)
+
+	result := handler(ctx, msg)
+	assert.Equal(t, result, sdk.Result{})
+
+	newDiff, err := keeper.GetLastDifficulty(ctx)
+	assert.Nil(t, err)
+	assert.Equal(t, newDiff, uint64(2))
+
+	newCount, err := keeper.GetLastCount(ctx)
+	assert.Nil(t, err)
+	assert.Equal(t, newCount, uint64(1))
+
+	// todo assert correct coin change, awaiting https://github.com/cosmos/cosmos-sdk/pull/691
+
+	difficulty = uint64(4)
+	nonce, proof = mine(addr, count, difficulty)
+	msg = NewMineMsg(addr, difficulty, count, nonce, proof)
+
+	result = handler(ctx, msg)
+	assert.NotEqual(t, result, sdk.Result{})
+}
diff --git a/examples/democoin/x/pow/keeper.go b/examples/democoin/x/pow/keeper.go
new file mode 100644
index 0000000000..73558632c4
--- /dev/null
+++ b/examples/democoin/x/pow/keeper.go
@@ -0,0 +1,113 @@
+package pow
+
+import (
+	"fmt"
+	"strconv"
+
+	sdk "github.com/cosmos/cosmos-sdk/types"
+	bank "github.com/cosmos/cosmos-sdk/x/bank"
+)
+
+// module users must specify coin denomination and reward (constant) per PoW solution
+type PowConfig struct {
+	Denomination string
+	Reward       int64
+}
+
+// genesis info must specify starting difficulty and starting count
+type PowGenesis struct {
+	Difficulty uint64 `json:"difficulty"`
+	Count      uint64 `json:"count"`
+}
+
+type Keeper struct {
+	key    sdk.StoreKey
+	config PowConfig
+	ck     bank.CoinKeeper
+}
+
+func NewPowConfig(denomination string, reward int64) PowConfig {
+	return PowConfig{denomination, reward}
+}
+
+func NewKeeper(key sdk.StoreKey, config PowConfig, ck bank.CoinKeeper) Keeper {
+	return Keeper{key, config, ck}
+}
+
+func (pk Keeper) InitGenesis(ctx sdk.Context, genesis PowGenesis) error {
+	pk.SetLastDifficulty(ctx, genesis.Difficulty)
+	pk.SetLastCount(ctx, genesis.Count)
+	return nil
+}
+
+var lastDifficultyKey = []byte("lastDifficultyKey")
+
+func (pk Keeper) GetLastDifficulty(ctx sdk.Context) (uint64, error) {
+	store := ctx.KVStore(pk.key)
+	stored := store.Get(lastDifficultyKey)
+	if stored == nil {
+		panic("no stored difficulty")
+	} else {
+		return strconv.ParseUint(string(stored), 0, 64)
+	}
+}
+
+func (pk Keeper) SetLastDifficulty(ctx sdk.Context, diff uint64) {
+	store := ctx.KVStore(pk.key)
+	store.Set(lastDifficultyKey, []byte(strconv.FormatUint(diff, 16)))
+}
+
+var countKey = []byte("count")
+
+func (pk Keeper) GetLastCount(ctx sdk.Context) (uint64, error) {
+	store := ctx.KVStore(pk.key)
+	stored := store.Get(countKey)
+	if stored == nil {
+		panic("no stored count")
+	} else {
+		return strconv.ParseUint(string(stored), 0, 64)
+	}
+}
+
+func (pk Keeper) SetLastCount(ctx sdk.Context, count uint64) {
+	store := ctx.KVStore(pk.key)
+	store.Set(countKey, []byte(strconv.FormatUint(count, 16)))
+}
+
+func (pk Keeper) CheckValid(ctx sdk.Context, difficulty uint64, count uint64) (uint64, uint64, sdk.Error) {
+
+	lastDifficulty, err := pk.GetLastDifficulty(ctx)
+	if err != nil {
+		return 0, 0, ErrNonexistentDifficulty()
+	}
+
+	newDifficulty := lastDifficulty + 1
+
+	lastCount, err := pk.GetLastCount(ctx)
+	if err != nil {
+		return 0, 0, ErrNonexistentCount()
+	}
+
+	newCount := lastCount + 1
+
+	if count != newCount {
+		return 0, 0, ErrInvalidCount(fmt.Sprintf("invalid count: was %d, should have been %d", count, newCount))
+	}
+
+	if difficulty != newDifficulty {
+		return 0, 0, ErrInvalidDifficulty(fmt.Sprintf("invalid difficulty: was %d, should have been %d", difficulty, newDifficulty))
+	}
+
+	return newDifficulty, newCount, nil
+
+}
+
+func (pk Keeper) ApplyValid(ctx sdk.Context, sender sdk.Address, newDifficulty uint64, newCount uint64) sdk.Error {
+	_, ckErr := pk.ck.AddCoins(ctx, sender, []sdk.Coin{sdk.Coin{pk.config.Denomination, pk.config.Reward}})
+	if ckErr != nil {
+		return ckErr
+	}
+	pk.SetLastDifficulty(ctx, newDifficulty)
+	pk.SetLastCount(ctx, newCount)
+	return nil
+}
diff --git a/examples/democoin/x/pow/keeper_test.go b/examples/democoin/x/pow/keeper_test.go
new file mode 100644
index 0000000000..6e0d526496
--- /dev/null
+++ b/examples/democoin/x/pow/keeper_test.go
@@ -0,0 +1,49 @@
+package pow
+
+import (
+	"testing"
+
+	"github.com/stretchr/testify/assert"
+
+	abci "github.com/tendermint/abci/types"
+	dbm "github.com/tendermint/tmlibs/db"
+
+	"github.com/cosmos/cosmos-sdk/store"
+	sdk "github.com/cosmos/cosmos-sdk/types"
+	auth "github.com/cosmos/cosmos-sdk/x/auth"
+	bank "github.com/cosmos/cosmos-sdk/x/bank"
+)
+
+// possibly share this kind of setup functionality between module testsuites?
+func setupMultiStore() (sdk.MultiStore, *sdk.KVStoreKey) {
+	db := dbm.NewMemDB()
+	capKey := sdk.NewKVStoreKey("capkey")
+	ms := store.NewCommitMultiStore(db)
+	ms.MountStoreWithDB(capKey, sdk.StoreTypeIAVL, db)
+	ms.LoadLatestVersion()
+
+	return ms, capKey
+}
+
+func TestPowKeeperGetSet(t *testing.T) {
+	ms, capKey := setupMultiStore()
+
+	am := auth.NewAccountMapper(capKey, &auth.BaseAccount{})
+	ctx := sdk.NewContext(ms, abci.Header{}, false, nil)
+	config := NewPowConfig("pow", int64(1))
+	ck := bank.NewCoinKeeper(am)
+	keeper := NewKeeper(capKey, config, ck)
+
+	err := keeper.InitGenesis(ctx, PowGenesis{uint64(1), uint64(0)})
+	assert.Nil(t, err)
+
+	res, err := keeper.GetLastDifficulty(ctx)
+	assert.Nil(t, err)
+	assert.Equal(t, res, uint64(1))
+
+	keeper.SetLastDifficulty(ctx, 2)
+
+	res, err = keeper.GetLastDifficulty(ctx)
+	assert.Nil(t, err)
+	assert.Equal(t, res, uint64(2))
+}
diff --git a/examples/democoin/x/pow/mine.go b/examples/democoin/x/pow/mine.go
new file mode 100644
index 0000000000..ff2264aaa7
--- /dev/null
+++ b/examples/democoin/x/pow/mine.go
@@ -0,0 +1,44 @@
+package pow
+
+import (
+	"encoding/hex"
+	"math"
+	"strconv"
+
+	sdk "github.com/cosmos/cosmos-sdk/types"
+	crypto "github.com/tendermint/go-crypto"
+)
+
+func GenerateMineMsg(sender sdk.Address, count uint64, difficulty uint64) MineMsg {
+	nonce, hash := mine(sender, count, difficulty)
+	return NewMineMsg(sender, difficulty, count, nonce, hash)
+}
+
+func hash(sender sdk.Address, count uint64, nonce uint64) []byte {
+	var bytes []byte
+	bytes = append(bytes, []byte(sender)...)
+	countBytes := strconv.FormatUint(count, 16)
+	bytes = append(bytes, countBytes...)
+	nonceBytes := strconv.FormatUint(nonce, 16)
+	bytes = append(bytes, nonceBytes...)
+	hash := crypto.Sha256(bytes)
+	// uint64, so we just use the first 8 bytes of the hash
+	// this limits the range of possible difficulty values (as compared to uint256), but fine for proof-of-concept
+	ret := make([]byte, hex.EncodedLen(len(hash)))
+	hex.Encode(ret, hash)
+	return ret[:16]
+}
+
+func mine(sender sdk.Address, count uint64, difficulty uint64) (uint64, []byte) {
+	target := math.MaxUint64 / difficulty
+	for nonce := uint64(0); ; nonce++ {
+		hash := hash(sender, count, nonce)
+		hashuint, err := strconv.ParseUint(string(hash), 16, 64)
+		if err != nil {
+			panic(err)
+		}
+		if hashuint < target {
+			return nonce, hash
+		}
+	}
+}
diff --git a/examples/democoin/x/pow/types.go b/examples/democoin/x/pow/types.go
new file mode 100644
index 0000000000..ea368c3063
--- /dev/null
+++ b/examples/democoin/x/pow/types.go
@@ -0,0 +1,78 @@
+package pow
+
+import (
+	"bytes"
+	"encoding/hex"
+	"encoding/json"
+	"fmt"
+	"math"
+	"strconv"
+
+	crypto "github.com/tendermint/go-crypto"
+
+	sdk "github.com/cosmos/cosmos-sdk/types"
+)
+
+// MineMsg - mine some coins with PoW
+type MineMsg struct {
+	Sender     sdk.Address `json:"sender"`
+	Difficulty uint64      `json:"difficulty"`
+	Count      uint64      `json:"count"`
+	Nonce      uint64      `json:"nonce"`
+	Proof      []byte      `json:"proof"`
+}
+
+// enforce the msg type at compile time
+var _ sdk.Msg = MineMsg{}
+
+// NewMineMsg - construct mine message
+func NewMineMsg(sender sdk.Address, difficulty uint64, count uint64, nonce uint64, proof []byte) MineMsg {
+	return MineMsg{sender, difficulty, count, nonce, proof}
+}
+
+func (msg MineMsg) Type() string                            { return "pow" }
+func (msg MineMsg) Get(key interface{}) (value interface{}) { return nil }
+func (msg MineMsg) GetSigners() []sdk.Address               { return []sdk.Address{msg.Sender} }
+func (msg MineMsg) String() string {
+	return fmt.Sprintf("MineMsg{Sender: %v, Difficulty: %d, Count: %d, Nonce: %d, Proof: %s}", msg.Sender, msg.Difficulty, msg.Count, msg.Nonce, msg.Proof)
+}
+
+func (msg MineMsg) ValidateBasic() sdk.Error {
+	// check hash
+	var data []byte
+	// hash must include sender, so no other users can race the tx
+	data = append(data, []byte(msg.Sender)...)
+	countBytes := strconv.FormatUint(msg.Count, 16)
+	// hash must include count so proof-of-work solutions cannot be replayed
+	data = append(data, countBytes...)
+	nonceBytes := strconv.FormatUint(msg.Nonce, 16)
+	data = append(data, nonceBytes...)
+	hash := crypto.Sha256(data)
+	hashHex := make([]byte, hex.EncodedLen(len(hash)))
+	hex.Encode(hashHex, hash)
+	hashHex = hashHex[:16]
+	if !bytes.Equal(hashHex, msg.Proof) {
+		return ErrInvalidProof(fmt.Sprintf("hashHex: %s, proof: %s", hashHex, msg.Proof))
+	}
+
+	// check proof below difficulty
+	// difficulty is linear - 1 = all hashes, 2 = half of hashes, 3 = third of hashes, etc
+	target := math.MaxUint64 / msg.Difficulty
+	hashUint, err := strconv.ParseUint(string(msg.Proof), 16, 64)
+	if err != nil {
+		return ErrInvalidProof(fmt.Sprintf("proof: %s", msg.Proof))
+	}
+	if hashUint >= target {
+		return ErrNotBelowTarget(fmt.Sprintf("hashuint: %d, target: %d", hashUint, target))
+	}
+
+	return nil
+}
+
+func (msg MineMsg) GetSignBytes() []byte {
+	b, err := json.Marshal(msg)
+	if err != nil {
+		panic(err)
+	}
+	return b
+}
diff --git a/examples/democoin/x/pow/types_test.go b/examples/democoin/x/pow/types_test.go
new file mode 100644
index 0000000000..34ab8914eb
--- /dev/null
+++ b/examples/democoin/x/pow/types_test.go
@@ -0,0 +1,78 @@
+package pow
+
+import (
+	"fmt"
+	"testing"
+
+	"github.com/stretchr/testify/assert"
+
+	sdk "github.com/cosmos/cosmos-sdk/types"
+)
+
+func TestNewMineMsg(t *testing.T) {
+	addr := sdk.Address([]byte("sender"))
+	msg := MineMsg{addr, 0, 0, 0, []byte("")}
+	equiv := NewMineMsg(addr, 0, 0, 0, []byte(""))
+	assert.Equal(t, msg, equiv, "%s != %s", msg, equiv)
+}
+
+func TestMineMsgType(t *testing.T) {
+	addr := sdk.Address([]byte("sender"))
+	msg := MineMsg{addr, 0, 0, 0, []byte("")}
+	assert.Equal(t, msg.Type(), "pow")
+}
+
+func TestMineMsgValidation(t *testing.T) {
+	addr := sdk.Address([]byte("sender"))
+	otherAddr := sdk.Address([]byte("another"))
+	count := uint64(0)
+	for difficulty := uint64(1); difficulty < 1000; difficulty += 100 {
+		count += 1
+		nonce, proof := mine(addr, count, difficulty)
+		msg := MineMsg{addr, difficulty, count, nonce, proof}
+		err := msg.ValidateBasic()
+		assert.Nil(t, err, "error with difficulty %d - %+v", difficulty, err)
+
+		msg.Count += 1
+		err = msg.ValidateBasic()
+		assert.NotNil(t, err, "count was wrong, should have thrown error with msg %s", msg)
+
+		msg.Count -= 1
+		msg.Nonce += 1
+		err = msg.ValidateBasic()
+		assert.NotNil(t, err, "nonce was wrong, should have thrown error with msg %s", msg)
+
+		msg.Nonce -= 1
+		msg.Sender = otherAddr
+		err = msg.ValidateBasic()
+		assert.NotNil(t, err, "sender was wrong, should have thrown error with msg %s", msg)
+	}
+}
+
+func TestMineMsgString(t *testing.T) {
+	addr := sdk.Address([]byte("sender"))
+	msg := MineMsg{addr, 0, 0, 0, []byte("abc")}
+	res := msg.String()
+	assert.Equal(t, res, "MineMsg{Sender: 73656E646572, Difficulty: 0, Count: 0, Nonce: 0, Proof: abc}")
+}
+
+func TestMineMsgGet(t *testing.T) {
+	addr := sdk.Address([]byte("sender"))
+	msg := MineMsg{addr, 0, 0, 0, []byte("")}
+	res := msg.Get(nil)
+	assert.Nil(t, res)
+}
+
+func TestMineMsgGetSignBytes(t *testing.T) {
+	addr := sdk.Address([]byte("sender"))
+	msg := MineMsg{addr, 1, 1, 1, []byte("abc")}
+	res := msg.GetSignBytes()
+	assert.Equal(t, string(res), `{"sender":"73656E646572","difficulty":1,"count":1,"nonce":1,"proof":"YWJj"}`)
+}
+
+func TestMineMsgGetSigners(t *testing.T) {
+	addr := sdk.Address([]byte("sender"))
+	msg := MineMsg{addr, 1, 1, 1, []byte("abc")}
+	res := msg.GetSigners()
+	assert.Equal(t, fmt.Sprintf("%v", res), "[73656E646572]")
+}