Proof of work

Introduction to Proof of work

Proof of work is the original blockchain consensus algorithm. Included in the Bitcoin whitepaper

Proof of work uses computational power as it scarce resource. "Miners" compete to create a valid block that will be accepted by the blockchain network

• The hash of the block header must be less than a set threshold

• This is based on the current mining difficulty

  • Mining difficulty is updated at regular intervals to match the current computational power of the blockchain network ("hashrate")

Miners are incentivized to create blocks:

• Block reward: Set amount given to the block creator for finding a block

• Transaction fees: A "tax" on transactions that goes to the block creator

Breakdown

Here's a simple breakdown of how it works:

• Miners compete to create the next block: Miners use their computers to generate a potential block and try to find a version of that block that meets certain requirements.

• Difficulty and validity: The block's hash (a unique identifier) must be less than a set threshold to be considered valid. This ensures that finding a valid block is difficult and that only one block is created for each block interval.

• Mining difficulty: The difficulty is adjusted so that, on average, it takes a certain amount of time to find a valid block. For example, in Bitcoin, a block is found every 10 minutes.

• Incentives for miners: Miners are rewarded with cryptocurrency for finding a valid block. The reward decreases over time, but they can also earn transaction fees from users.