Who owns the ledger?
Let’s assume that a single person or entity has full control of the ledger. This eliminates the need for on the network, since there is a central power that is capable of imposing its definition of truth. The purpose of Bitcoin is precisely to eliminate this central power, creating a true electronic cash system.
In blockchain there is no central power and the ledger is distributed among all participants, who then need to agree on a criterion to establish a single truth. This criterion of truth is called the consensus mechanism, and Bitcoin’s consensus mechanism is known as the Nakamoto consensus. It’s based on an idea called , which needs to be understood.
The idea behind Nakamoto’s consensus is to create a kind of lottery that will select the participant who will have the right to include the next block in the chain. The principle of proof of work is that this draw is decided by the amount of work the participant has performed on the network. The more work a user does, the greater their chances of being selected. And here we are talking about computational work.
Let’s understand how it works. To have the right to insert the next block in the chain, the participant must solve a mathematical puzzle. The solution to this puzzle is not based on logic or reasoning, but pure luck. You have to find a magic number that will satisfy certain requirements, and that number must be searched for by trial and error. Because this number is so large, the more numbers someone can try per second, the better their chances of finding the right one. Currently, to find this number, a participant must try something like 250 quintillion numbers per second.
Eventually, some participant will find the right number and solve the puzzle. The difficulty of finding such a number is controlled by the , with the aim of ensuring that such a number is found every 10 minutes on average in Bitcoin. Once someone solves the puzzle, that participant communicates to the other members, who will check whether their claim is valid or not. If the claim is found to be valid, that user will add the next block and be rewarded for doing so.
It is possible that two participants solve the puzzle at almost the same time. At this point, there will be a fork in the network, with two different versions. We say that consensus is momentarily lost. However, it will eventually be achieved again. When the next participant solves the next puzzle, he has to choose a chain to follow. When this is done, one of the chains will be the longest, and the consensus mechanism ensures that the longest chain is the valid one.
Every time a new block is added to the chain, the participant who added the block is rewarded with the network’s native . In the case of Bitcoin, the participant is rewarded with bitcoins. Such bitcoins are added to the total supply, that is, they are created. This is why we say that such bitcoins are mined and that the participants who seek to solve the puzzle are called miners.