How does Bitcoin pooled mining work?

Economics Behind Mining

To understand how mining really works, let’s first understand the economics behind it.

The network of computers running the coin software (let’s say Bitcoin) wants history (of transactions) to be recorded in the form of blocks, and it rewards those who do so with 12.5 BTC.

Bitcoin wants history to be recorded in a new block every 10 minutes. Additionally, since anybody could record history in a new block, it has to make sure that those who invested the most (electricity, stake, capacity etc) have a better chance of recording a new block, because those who invested the most are probably more interested in seeing Bitcoin work properly, as opposed to those who are trying to spend their Bitcoin twice.

Since recording a new block has a reward associated with it, and a new block mustn’t appear too often, and those who write history may have nefarious intents, there is a need to make recording a new block artificially difficult. This is mining/Proof of Work.

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