Bitcoin, the worlds’ first operational Cryptocurrency and blockchain, is built on a decentralized network that utilizes blockchain technology to secure records and transactions. To truly understand how blockchain technology functions as a decentralized system, you must be familiar with terms such as Proof-of-Work, Hashing, Blocks, and Mining.
What is Proof-of-Work?
Proof-of-work or PoW is the complex algorithm that forms and secures the Bitcoin blockchain network. It is a mechanism used by blockchain networks to achieve trustless and distributed consensus. The complex algorithm is in the form of mathematical problems, which a pool of high-powered computers can solve.
The Proof of Work(PoW) theory was written in 1993 by Cynthia Dwork and Moni Naor. Satoshi Nakamoto later applied this theory in 2009 to build Bitcoin’s Blockchain. Other crypto developers have employed a similar Proof of Work model to power their blockchain activities. Cryptocurrencies like Ethereum, Dogecoin, and Lite are a few tokens built on PoW consensus.
A PoW algorithm works so that computer connections within a network solve a math problem to construct the next block. It also prevents the problem of double-spending, and top cryptocurrencies like Bitcoin use it as the consensus algorithm. The Proof-of-work algorithm requires multiple computational strengths to solve mathematical problems, which makes up the mining process. The protocol also ensures that excessive mining does not occur by increasing the difficulty of verifying each block. It also manages the supply of cryptocurrencies and supports the miners to keep the network working. Proof of Work requires resources like time, computational strength, and energy to keep the blockchain fully operational.
What are Blocks?
Blocks are formed through the process of mining. A block is essentially a bunch of transactions that have been added to the blockchain. For example, when bitcoin or any other crypto is transacted, it isn’t updated to the blockchain straight away. Instead, it is held in a transaction pool where it needs to be verified by the network. Each block on the blockchain contains the number of transactions, the hashing power used to verify each block, and other mining information. The digital ledger is in the form of multiple bocks on a blockchain.
What is a Blockchain?
Blockchain simply means multiple blocks on a chain. Blockchain technology is essentially a database that records all transactions on the network — a digital record or ledger. Since the mechanics of Crypto are built on decentralization, these functions are powered by peer-operated connections distributed all around the world (mining). Bitcoin miners solve complex math equations using their computers, an energy-intensive process that generates new blocks to earn BTC rewards.
It’s decentralized and powered by peer-operated nodes distributed worldwide with no central authority dictating the rules.
What is Hashing?
Hashing is a process or algorithm that calculates a file’s data, value, or capacity, in this case, blocks. Hash codes are used to narrow down the search when looking for the items on the network. These hash codes are used to create an index that helps store and file data within the blockchain. Each block on the blockchain has information relating to transactions, with hash indexes representing the value of data in each block. The index number formed after hashing is the hash value, considered the compressed summary of everything within that file.
Mining
Mining is the process through which transactions are verified and secured on the blockchain network. A group of miners worldwide pools their computer power together to solve Bitcoins’ Proof of work algorithm to earn BTC rewards.
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