Great analogy for crypto mining from Redditor jav_rddt

While learning about crypto and mining, I came across this great example on reddit by jav_rddt:

Because Bitcoin is a decentralized system, you need a decentralized workforce to keep it running. Miners are this workforce, which help to keep the infrastructure running and are paid for their services in newly minted Bitcoins. This essentially just means they are paid by inflating the money supply, i.e. a tax on everyone who has Bitcoins.

If you decide you have the skills and resources to help run the Bitcoin network, you can become a miner and get paid for it. But it's also fine to just be a user of the system and enjoy a very cheap "crowd-sourced" infrastructure for digital payments.

Now, regarding the often mentioned "math problems": A miner takes a bunch of recent Bitcoin transactions and bundles them all up into one "block". This is essentially a kind of vote, where the miner says: Hey, I propose that these transactions should be accepted by everyone (they still need to follow certain rules, he can't just make up arbitrary transactions - but he can, for example, pick one of two conflicting transactions, essentially deciding which one wins over the other).

This bundling action is the "math problem", but I find that description fairly misleading. I think the following analogy is more helpful: Imagine all the transactions being differently shaped puzzle pieces. The miner tries lots of different combinations of putting theses pieces together to form a nice even, let's say, rectangle. If he succeeds, he announces his solution to the rest of the network.

The advantage is, that it is very easy to check a solution: You just look at it and see, whether it forms a nice rectangle. But if you want to change some of the transactions and put different ones in, you need to do the whole puzzle again. This slows down would-be attackers, who want to vote for a different set of transactions, as they need to solve their own puzzle first.

Each puzzle always refers to the previous one, linking them all in a chain (the blockchain). Think of that as the previous puzzle being shrunken down and acting as an additional, unique puzzle piece in the next one. Now if your transaction is part of a puzzle 6 puzzles deep into the chain, you can be pretty sure that no one will doubt it going forward. Because to change it, an attacker would need to supply a new solution for that particular puzzle with your transaction missing and then also re-solve all the other puzzles after that. Meanwhile the rest of the network is producing new puzzles, which typically means the attacker has no chance of ever catching up. This is the basic idea behind "proof of work".

Because producing these puzzles is an essential function of the network, we allow anyone who solves one to award themselves some new Bitcoins out of thin air.

Quote originally from this archived reddit thread