Proof of work—aka cryptocurrency mining—has been around since the 1990s, but Bitcoin’s creator, Satoshi Nakamoto, popularized the concept in Bitcoin’s 2008 whitepaper as a process for securing blockchains.
The process requires computers to expend energy guessing a random number generated by the network. This is the “work” in a proof-of-work consensus and the cornerstone of early blockchain networks, most famously Bitcoin. The miner that stumbles upon the magic number wins the right to process a batch of transactions, known as a block, then adds them to a growing list of transactions called the blockchain.
For their trouble, the winning miner receives newly minted cryptocurrency, which can be sold for a profit, granted that the mine operator hasn’t been crippled by the energy bill required to run the computer. In the case of Bitcoin, the “block reward” initially amounted to 500 bitcoins, but the payoff has been periodically halved so that by 2022 the reward was 6.25.
Endless rounds of this game have played out every 10 minutes since Bitcoin launched in early 2009. Even after all Bitcoin has been mined and rewards for miners drop to next to nothing—likely by the year 2140—miners will continue to process Bitcoin transaction fees.
Mining contributes to the decentralization of the network since it’s hard for an individual miner to corral together enough energy to manipulate the game. In the early days of Bitcoin, it was possible to mine on a laptop or even a cellphone but today mining is dominated by companies employing specialized computers connected to giant power sources.
Critics of proof of work argue that a lot of the electricity used to power crypto mining industries comes from dirty sources of energy. But advocates maintain that these networks are worth the tradeoff. And some mining companies, especially those in North America, are basing their activity around clean energy sources.
In light of the criticisms, plus the up-front cost of getting a network of miners up and running, newer blockchain projects have started to favor proof of stake, an alternative mechanism that grants transaction validation rights to those who have locked up the most coins in the network. By switching to proof of stake in 2022, the second most popular cryptocurrency, Ethereum reduced its energy consumption by 99.5%, according to the nonprofit Ethereum Foundation that supports it.
Go deeper:
Cambridge Bitcoin Electricity Consumption Index
Mining Pool Stats
See also:
What is proof of stake?
What is Bitcoin?
What are blockchains?
Try it:
Bitcoin mining 101—set up your own rig using this guide from ZDNet