Kryptolesson #6

Proof-of-Work and Consensus

Recall that Bitcoin is technically a combination of 4 things – public key cryptography, peer-to-peer networks, blockchain and Proof-of-Work (PoW). And remember that in the context of Bitcoin, blockchain is a database where users agree on all the transactions that ever happened. More precisely, they agree on blocks of data that contain valid Bitcoin transactions. Since Bitcoin is an open network, anyone can propose blocks and announce it to the network. To gain the right to propose a block, however, nodes must first complete a computationally intensive task called PoW. The act of attempting to propose a block is also referred to as mining. Successful miners that get to propose a valid block are incentivized with a block reward that consists of 1. the block subsidy (currently 6.25 bitcoin per block) and 2. transaction fees.

‍The Bitcoin network accepts blocks which extend the longest chain. Hence, the “longest chain rule” is the consensus mechanism used in Bitcoin. The type of consensus used in Bitcoin and many other of PoW systems is also referred to as “Nakamoto Consensus”. Its underlying rule is simple: if there is a proposed block with the most PoW, it gets accepted. Usually, the block with the highest block number, that is, the one sitting at the top of the longest chain will have the most PoW done on it.

Photo by Jason Leem