Proof of Work Mining is a Decentralized Consensus Mechanism Used to Make Transactions Secure and Trustworthy.
Proof of Work (PoW) looks like a constantly running super-complicated math equation — which can be hard for the average person to envision.
It’s how Bitcoin keeps running 24/7/365 without supervision. It’s also why there’s a huge energy expenditure (a feature not a bug).
We created this post to visualize and help demystify this whole process.
It breaks it down into these five simple steps:
You’ve heard that Bitcoin is Peer-to-Peer (P2P)…
What exactly happens when someone sends BTC to someone else?
Let’s start here.
Suppose I wanted to send some BTC to you.
Before you received anything, our transaction would need to be validated.
This validation means it can be permanently added to the blockchain. Before this can happen, our transaction must first be broadcast to the entire Bitcoin network to ensure that a) I have the funds available, and b) that I have the permissions needed to send them.
Here’s how PoW mining would look like on Bitcoin.
Step 1 - Blocks
First, our transaction will be grouped with many other transactions into batches called blocks.
2 – Hashes
Every block of unsecured data needs to be secured via a process called mining. It involves taking every transaction in the block and running it through an algorithm which creates a unique identifying signature of 64 letters and numbers called a hash for each transaction.
3 – Combining Hashes
Once a block of transactions have been compressed into hashes, they are compressed further by pairing hashes and creating a new hash for each pair.
Finally the entire block of transactions will be represented by one single hash.
4 – Adding the Previous Hash
Now we have a hash that represents all of the current transactions, along with the hash that represents all the transactions from the previous block.
The “chain” in “blockchain” is formed by matching these two hashes.
If a single byte of data from any previous block were to change, it would invalidate all future blocks because every single hash going forward would change and break the blockchain.
5 – The Nonce
The final piece of the block is a random number called a nonce.
The nonce and the two hashes combined need to create a new hash that meets the criteria established by Bitcoin network.
The only way to find a valid hash is by trying random nonce numbers until the hash criteria is met. This last part is what takes all the energy and computing power.
6 – Mining
Bitcoin mining uses an energy intensive (and highly secure) consensus mechanism known as Proof-of-Work.
Other cryptocurrencies use different consensus mechanisms.
PoW is considered to be more decentralized and more secure than PoS by many people, because of the energy that needs to be invested.
The most notable alternative and Proof-of-Stake.
More and more of the energy for Bitcoin mining is coming from renewable resources.
In summary:
Bitcoin mining uses an energy intensive (and highly secure) consensus mechanism known as Proof-of-Work.
More and more of the energy for Bitcoin mining comes from renewable resources.
Other cryptocurrencies use different consensus mechanisms.
The most notable alternative is Ethereum and Proof-of-Stake.
