Securing Distributed Ledgers (Mining)

One of the challenges of maintaining a distributed record of transactions is security. In order to prevent fraudulent activity, Bitcoin introduced a novel process called Mining to determine who is trusted to make updates to the shared record of transactions.

The mining process can be thought of as a type of game that rewards "Validators" for proving their worth when trying to add transactions to the record. In order to qualify, Validators must solve a series of complex computational puzzles. The Validator who solves the puzzle first is rewarded by being allowed to post the latest block of transactions. Posting the latest block of transactions allows Validators to "mine" a Block Reward - currently 12.5 bitcoin (or ~$40,000 at the time of writing).

This process is very secure, but it demands enormous computing power and energy consumption as users essentially "burn money" to solve the computational puzzle that earns them more Bitcoin. The burn-to-reward ratio is so punitive that it is always in Validators' self-interest to post honest transactions to the Bitcoin records.