Eager to start with crypto? Join Nexo – the trusted institution for digital assets to easily buy, earn, and exchange crypto.Sign Up
As autonomous structures, blockchains don’t rely on centralized governance. Instead, their proper and safe operation is ensured through protocols or sets of rules called consensus mechanisms.
Enter Proof-of-Work introduced with Bitcoin in 2009.
Imagine PoW as the brain of the blockchain. It serves as a central station, controlling its functions by validating transactions and supplying new tokens as rewards.
The PoW relies on miners and full-node operators to fulfill its main functions.
The former validate transactions and mine new blocks, while the latter store up-to-date blockchain copies and enforce the consensus rules.
Mining is like a treasure hunt where a group of participants – the miners, have to solve complex math problems to find hidden gems – the blockchain reward.
The first to find it wins a prize. Then the hunt begins anew.
While mining can be very lucrative — the first-ever Bitcoin blockchain reward was worth 50 BTC, it can also be very expensive. The process requires significant computational power, which means high electricity costs.
In 2022, the global average cost of mining one BTC was 55% higher than its price. Due to the increasing difficulty of Bitcoin mining, to optimize costs, miners nowadays join collective mining pools.
Hint: You can trade it or store it.