The Bitcoin invention is the result of decades of research in cryptography and distributed systems, and is the culmination of several failed attempts to create digital currencies not issued by governments. The operation of Bitcoin is made possible by a set of four fundamental innovations brought together in a unique and potentially effective combination:
A decentralized network between equal pairs (P2P). The Bitcoin protocol.
A public record of transactions, in chronological order. The Blockchain.
A set of rules for independent validation of transactions and issuance of currency. Consensus rules.
A mechanism for reaching global decentralized consensus in a blockchain. Proof-of-Work (PoW) algorithm, mining.
The combination of the four key innovations allows Bitcoin to decentralize trust. The essence of Bitcoin is the ability to operate in a decentralized way without having to trust anyone. Bitcoin revolutionizes trust. It’s an autonomous system where autonomy replaces authority.
Mining is the mechanism by which Bitcoin Revolution security is decentralized. It uses the concept of the Proof-of-Work (PoW) algorithm to achieve consensus in an emergent way without the need for a reliable central control authority. Mining creates a safety model based on a competition (game theory) that involves a risk and an incentive.
The risk: „energy sharing
The risk is represented by the participation of a universal resource extrinsic to the system in the form of investment „energy share“ that the miners are committing and putting in guarantee that they will perform the safety work correctly. In other words, they deposit a guarantee in the form of energy use and demonstrate it by solving the Proof-of-Work (PoW) algorithm which is an asymmetric mechanism in difficulty, difficult to solve but easy to verify by the rest of the competitors.
The incentive: „the bitcoin““
In contrast, there is a reward scheme that seeks to align the miners‘ actions with the safety of the network and encourages the miners to keep working honestly, in order to have a significant incentive there is an intrinsic and native asset in the form of a currency „the token, „bitcoin“ which all miners seek to obtain and keeps them competing in an honest and fair way.
Miners receive two types of rewards:
Block Subsidy: Newly created bitcoin, this is the mechanism by which the monetary issue is made in Bitcoin.
Commissions: fees paid for transactions included in the blocks for using network resources.
Block Reward = Block Subsidy + Commissions
The block reward refers to the amount of bitcoin that miners can claim as part of the incentive system for creating a valid block and is equal to – the sum of the block subsidy (new coins) plus the transaction fee paid for the transactions included in the block.