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 kinda hard to picture.

This explanation will break the process down into five simple steps.

What exactly happens when someone sends BTC to someone else?

Suppose I wanted to send some BTC to my friend Dave.

Before he received anything, our transaction would need to be validated. This validation means it can be added to the blockchain. And 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 a transaction works on the Bitcoin network and what we imagine it might look like.

 

 

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

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.