The way the Bitcoin network is maintained in ensuring that all transactions are validated by the thousands and thousands of “miners” in the world is by something called “Proof Of Work” or “POW”.

“Miners” are computers with the Bitcoin software installed and connected 24/7 to the Internet.

Bitcoin transactions need to be verified to have occurred and they need to be recorded on the Bitcoin blockchain for transparency and checks, so that we can all trust the Bitcoin blockchain.

The transactions are basically who sent bitcoin to who, when, and how much each bitcoin owner now has after transacting with each other.

These transactions are grouped together in BLOCKS (which contain more than one transaction) so that they can all be verified at once, instead of one by one, to make things more efficient.

So when a block of transactions have occurred and are ready to be verified, ALL the miners in the Bitcoin network will rush to verify them.

The FIRST miner that does this verification correctly, and its verification confirmed as correct by the other miners in the network, will be rewarded with 6.25 bitcoins as its reward.

That’s a total of about USD181,000 at current bitcoin value – just to verify a block of bitcoin transactions!

(When bitcoin was first released in 2009, the reward for a correct verification by a miner was a whopping 50 bitcoins — but bitcoin was worth only a few cents each then).

The way the verification works is by the FIRST miner finding a special number (let’s call it ‘X‘) that, when combined with the block’s transactions and processed through a specific mathematical formula, produces a specific pattern. This pattern is made known to the miner, but not the number “X”.

In a way, the miner has to find a missing piece (the “X”) to a very complex mathematical puzzle.

The Bitcoin network knows what the X is, but the miners don’t.

For the miner to find the value of X, it will try different numbers, one by one, until it finds the value that results in the pattern set.

So the “rush” by miners is their scrambling to solve what “X” is before the other miners do it, because, as stated above, the FIRST miner will get its reward in more bitcoins.

On average, this search will take about 10 mins before a miner somewhere in the world solves what “X” is.

A miner’s verified block of transactions will then be added to the previous block of transactions that had also been verified this way — thus forming a “chain” of blocks.

Hence the term “Blockchain”.

This is basically how the Bitcoin blockchain works in preserving the integrity of the Bitcoin network.

Whether a miner succeeds or not in being the FIRST to solve what “X” is, it continues to rush to solve the NEXT block of transactions.

Hence the miner is turned on and connected to the Internet 24/7. Its sole job is to find the “X” for every block of transactions, every second of every minute of every hour of every day. The miner will not be used for any other computing purpose so that it doesn’t slow down.

Because of its constant calculations to find the next “X” for the next block of transactions, each miner will consume a lot of electricity and produce a lot of heat. This is the “work” in “Proof of Work”.

A miner has to prove it has done the verification work by being the first to find “X”, to be rewarded in more bitcoins.

So a lot of electricity is used to operate the miners which produces heat.

And a lot of electricity is used to cool the miners down so that they can operate properly.

Much like your car engine’s heat must be cooled by your radiator, else it will burn up after a while and your car will no longer move.

But your radiator doesn’t take up much power to cool your engine down, unlike miners.

It is not unusual for mining electricity costs to be in the tens of thousands of dollars a month, depending on how many computers is set up to mine bitcoins.

The miner hopes that its 6.25 bitcoins as reward for a successful verification will be more than enough to cover its electricity cost so that it can make a good profit.

Which is why miners either look for countries with low electricity rates, or with very cold climates, to try to reduce their electricity costs.

Other unscrupulous miners steal electricity or tamper with their meters.

I have walked into a small mining setup owned by a friend some years ago, with about 30 computers running simultaneously.

Walking into the room with just these 30 computers is like walking into a sauna. If there is no cooling system in place, the computers will break down soon enough.

It is also very noisy, as the computers’ fans are running at full speed throughout the day.

Because of the above, the room for mining cannot be used for any other purpose, even if there are extra space unused.

The bigger miners will have thousands and thousands of computers set up at a cost of millions of dollars.

The more computers they have, the higher their electricity costs, but the higher their chances of becoming the first to solve the “X”, which will earn them more bitcoins than the other smaller miners.

You can also see why some people don’t like the Bitcoin network, because of the huge amount of electricity it consumes just to maintain a record of transactions between bitcoin owners.

But there’s an alternative method to verifying blockchain transactions that is equally as effective, without consuming huge amounts of electricity. Watch out for Part 2.