How does Proof of Work Crypto Mining Work?

To help understand the inner workings of Bitcoin and other Cryptocurrencies with “proof of work”, I wanted to use a simple scenario to articulate how mining functions.

Imagine several players sitting around a table, these are the “miners” in Bitcoin. Each player has a pad of paper, a pencil and some dice. In the middle of the table sits 25 chips and a number between 1 and 24 is displayed.

To win those chips all players start simultaneously rolling the dice all at once and to win they must roll the number displayed in the center of the table. When a player rolls the correct number they raise their hand and show the dice to everyone at the table. If more than half of the people at the table nod their head that winner rolled the number that matches the number in the center of the table they take the coins. Then the round ends.

The next round starts and magically a new set of 25 coins and a new random number between 1 and 24 appears in the center of the table and everyone starts trying to roll the new number.

This game has become popular and more people join the game. For every 10 dice at the table the top range of the random number that appears in the center of the table increases by 6 (the total count on a single die).

For players to stay competitive as the total number of dice at the table increases, players must buy more and more dice to stay competitive. If they don't stay competitive then they greatly decrease their odds of winning. If a player with 4 dice refuses to get additional dice when the range of the random number increases then they limit their chances between numbers 1 and 24, while those that bought more dice have the ability to roll the full range increasing their chances.

Now imagine there is a crowd of people around the table that are wanting to exchange these chips with each other. In order to do this, the sender yells out how much they want to give to the other person and the fee they are willing to send with the transaction. As the senders yell out the transactions, the players at the table write down these transactions on their sheet of paper while they are rolling the dice. While this slightly slows the pace of players rolling the dice, they choose to do this as a way to increase their winnings because if they win a round they also get all of the fees they wrote down on the piece of paper, which represents the “block”. Some players may choose to only write down transactions that have a good sized fee to make them worth their while.

Once the round is over the winner puts the piece of paper they wrote down up on a board for all to see. As each round is finished each winner places a new piece of paper next to the previous rounds piece to form a “chain” of paper each side by side from the first round to the last round. This chain of paper becomes a ledger for all to see.

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