Mining

Welcome back. Earlier I mentioned earlier that participants participate and contribute freely in the decentralized system. But is there a reason why people should participate without any reward? But what if there's a "reward mechanism" that encourages people to participate, and if what they receive as a reward becomes more valuable in the future, it is obvious that people voluntarily participate for this process.

Now.. we know there is no centralized party in decentralized ecosystem, and who would pay the rewards to participants? That’s why issuing coins concept has been introduced to regulate the amount of issuance, impose scarcity and induce the development of the larger ecosystem.

Mining Bitcoin is almost same as mining of gold in digital world. When I successfully mine Bitcoin, a corresponding amount of Bitcoin is newly issued by the network, and I (miner) receives this newly issued Bitcoin as a reward.

Mining Behavior: Proof of Work (PoW)

The fundamental operation of mining applied to Bitcoin is that it rewards participants (i.e. miners) according to the amount of computational power contributed to the network. Allow me explain how mining works in mode detail. Miners collectively start solving a complicated problem that takes computers a significant amount of time to compute. The first miner who solves the problem informs the network, signaling that he was the first one to solve the problem. Then, other miners need to solve a new problem. When each problem solved, a block is generated and currency (in this case it is Bitcoin) is issued, and all transactions that occurred during that time are ultimately finalized. That’s why you might saw news about many computers are consuming the energy which is against environmental issue which I will address later.

I mentioned in the 4th session that "blockchain can easily detect tampered transaction records," and let’s figure out what would happen if all transactions were altered. To detect tampered transaction records, one must trace backward from the current blockchain information. If the information is wrong from the beginning of tracing, it's impossible to identify which transaction records have been tampered with. And some methodology is needed to prevent this issue.

When each block requires a tremendous amount of computation to be created, altering all transactions would require significantly more computation. If this level of computation is beyond what even supercomputers can achieve, then tampering with transaction records in the blockchain becomes practically impossible. Mining ensures security by solving these problems, contributing to the security of the Bitcoin network, and issuing Bitcoin as a reward. The act of solving these problems is called Proof of Work (PoW), which signifies proving to the network that you've solved the problem effectively.

Additionally, since computational power is required, the more computational power you have, the higher the likelihood of solving the problem quickly and receiving the reward. Ultimately, participants use the computational power of computers to contribute to mining, enhancing the security of the network and receiving rewards. Before the advent of Bitcoin, decentralized currencies incentivized participation through currency issuance, but there was no mechanism to ensure safety from tampering as participation increased. Therefore, to achieve blockchain and decentralization, a currency system for rewards was necessary, which is why Bitcoin became the first cryptocurrency.

So.. Miners play key roles for decentralization in blockchain and they get reward as Bitcoin. Since there are multiple blocks at the network, created by miners, it is impossible to change the data unless hacker changes all related blocks. In addition, miner who solve the problem at first receive 50 BTC as a reward (considering current Bitcoin price; reward is quite huge. Of course, I do not factor in how difficult and huge infra to support)