What is PoW? Why Can Mining Make Money? Where Does the Money Come From?

Consensus mechanism is a rule that every nodes in the blockchain must comply to. Generally speaking, everyone needs to agree with the framework they are in. Its value comes from the recognition of each nodes. For example, the money we use in the real world is not only because the government has given “this piece of paper” value, but more importantly, each of us agrees that “this piece of paper” is valuable. If you don’t understand, you can refer to the development of “money” in the primitive society without rulers. The current mainstream Consensus mechanism is divided into two types, one is PoW Consensus mechanism and the other is PoS Consensus mechanism., Today, I will mainly introduce PoW Consensus mechanism.

1. What is the PoW Consensus mechanism?

The full name of PoW is Proof of Work, which is proof of workload. At first, this technology was used to solve the problem of spam, but later Satoshis, the founder of Bitcoin, found this technology can effectively solve the “Byzantine General Problem” (Byzantine Generals Problem, it was developed by Leslie Lamport In his paper, the distributed peer-to-peer network communication fault tolerance problem). So it was introduced into the Bitcoin blockchain network, and PoW gradually became one of the mainstream of today’s blockchain.

2. How does PoW work?

PoW solves the consistency problem of each nodes in the blockchain by competing for accounting. Each nodes in the blockchain can freely participate in data processing, that is, packaging blocks. In order to make each nodes consistent, PoW stipulates that each nodes that wants to participate in accounting must rely on computing power to compete with others for the accounting power. For instance, a class needs to choose a few people to participate in the city’s math contest. Of course, the person with the strongest arithmetic ability can be selected first to participate in the math contest. The way of PoW competition is to hold a round of hashrate competition every 10 minutes. The participating nodes constantly look for a Nonce through hashrate. Who first finds the Nonce value that meets certain conditions will then have a small horn and notify the whole network to gain everyone’s approval and gain the right to account it. The person who finally gets the right of accounting will connect the blocks he packs to the chain of block chain. At the same time, the data he records will also be included in his small ledger by other nodes in the whole network.

3. How to make money from PoW ?

on the bitcoin network the PoW mechanism is the mining principle of bitcoin. It will give Bitcoin to nodes that have obtained accounting rights as rewards, thus stimulating more people to participate in it. It allows the computing power of each nodes to be added to the transaction authentication center of the network, making it more decentralized and more expensive nodes tampering. In theory, unless someone deliberately makes trouble and masters more than 51% of the hashrate, the entire network cannot be tampered with. This is also the so-called “51% attacks”. However, as more and more people are participating now, it is difficult for people who want to control this 51%, but it is not completely impossible for some influential people in the community to do so. Of course, the more people involved, the higher the hashrate of the whole network, the more difficult it is to control the hashrate of the 51%, and the safer the whole network.

4. Disadvantages of PoW

PoW mechanism is not perfect either. It has paid a lot of price to ensure the strong decentralized of the network. For example, it has been criticized by the media for wasting a lot of resources and low performance efficiency. But it is undeniable that it does realize the decentralized Internet, making it no longer just a concept. With the development of technology, many people are now studying and trying to break the “ Impossible Trinity of PoW”. PoW, which believes that the “Impossible Trinity” will be broken in the future, will inevitably create another new world.