- When paying someone by conventional means,
you might be handing over cash, say, notes and coins.
Once you make payments,
you no longer have the physical money.
If you're paying from your bank account,
you're instructing the system
to move your money to another account.
The financial system infrastructure takes care
of validating that money is available and then moves it.
All accounts are kept up to date.
Since cryptocurrency is entirely digital
and there is no central management,
we need another process to ensure
that all transactions are managed and kept current.
This is where mining plays an essential role.
In fact, mining has two important purposes.
First, mining is used to validate transactions.
And second, it's a way
in which new cryptocurrency is introduced.
Mining is a role that anyone can choose to perform
in a blockchain network.
Most don't; it's a niche responsibility on most blockchains.
The motivation to become a miner is driven
by the potential to earn income
by contributing your computing power to specific activities.
You'll recall that in a blockchain,
a person who wants to send money to another
must first broadcast their digitally-signed request
to the entire network.
This transaction joins others
that are also queued up for verification.
We don't want just anyone checking the transactions
and approving them because they could potentially lie
and approve an invalid transaction.
Instead, we want miners to expend effort
to validate the transactions,
and then, as an additional layer of evidence,
we will require a consensus of all participants to agree.
The effort that miners expand is a process
called proof of work.
It begins with confirming that each person
has the money to perform their requested transaction.
This is easy to compute by simply reviewing the history
of blockchain transactions.
Next, the blockchain system asks the miners
to solve a mathematical problem.
This problem is created by using a computing process,
a type of cryptographic algorithm called hashing
to convert the contents of the previous block
of transactions into a unique pre-determined output.
The computing power of miners systems
must then guess that output.
Typically, the miner with the best computing power,
a competition that consumes
a lot of energy will guess it first.
For that, they'll be rewarded
with a small commission and some new crypto.
Note that this is how crypto is introduced.
We're not done yet.
The winning miner gets the reward,
and then the answer to the mathematical problem,
the proof of work is broadcast
to all the participant computers.
These participants known as nodes check the answer
and if they all agree,
this is the consensus process.
The new transactions are time stamped
and added to the chain of blocks, the blockchain.
Finally, yes, there's just a little more.
The hashing process,
that cryptographic algorithm that miners compete in,
is used to create a unique relationship
between each block and its subsequent block.
Each block depends on the previous block.
It's not possible to interfere with the data they contain.
The system is designed to only function
when the relationships are intact.
Mining is at the core of how most blockchains work.
For many, it's the most complex part.
If you get the basic idea, then you're ahead of most.
In the next video, I'll discuss what you require
if you decide you'd like to perform the role of a miner.