Blocks: batches of transactions + metadata

Chain: blocks linked by cryptographic hashes

Immutability: changing a past block changes its hash, breaking links

Nodes

Miners (in Proof of Work systems)

Fixed-length output from arbitrary input

Small input change → completely different output

Used for block IDs, linking blocks, and mining puzzles

Nonce: adjustable value miners vary to change the block hash

Difficulty: how hard it is to find a valid hash (set by the network)

Target threshold: hash must be below a target value

User constructs transaction (inputs, outputs, amount, fee)

User signs with private key (authorization)

Sent to peer-to-peer network

Propagates across nodes

Nodes hold valid unconfirmed transactions in memory pool

Transactions prioritized typically by fee rate (fee per byte/weight)

Signature validity

No double-spending (inputs unspent)

Amounts and script rules

Fee and size/weight constraints

Choose from mempool (often highest fee rate first)

Ensure block size/weight limits

Avoid invalid or conflicting transactions

First transaction in the block

Creates new coins (block subsidy) + collects transaction fees

Includes miner payout address

May include extra nonce/metadata for additional variability

Previous block hash (links to chain tip)

Merkle root (summary of all transactions)

Timestamp

Difficulty/target encoding

Nonce

Version/flags (protocol signaling)

Hash transactions into a tree structure

Merkle root placed in header

Enables efficient proof that a transaction is included in a block

Find a block header hash that meets difficulty target (hash < target)

Achieved by varying nonce and other modifiable fields

Perform vast numbers of hash computations per second

Each attempt is independent and probabilistic

Extra nonce in coinbase transaction

Reordering transactions

Updating timestamp (within allowed rules)

Changing included transactions/fees set

Periodic recalculation to target a consistent average block time

If blocks found too quickly → difficulty increases

If too slowly → difficulty decreases

Miner discovers header hash below target

Candidate block becomes a proposed new block

Miner sends block to peers

Peers relay across the network

Verify Proof of Work meets target

Verify all transactions are valid and not double-spent

Verify coinbase reward is within allowed limits

Verify block format, size/weight, and consensus rules

Nodes follow the chain with the most cumulative work

Competing blocks can briefly create forks

1 confirmation: transaction included in a block

More confirmations: additional blocks built on top

If another branch gains more cumulative work, nodes may switch

Transactions in orphaned blocks return to mempool if still valid

Probability of reversal decreases as confirmations increase

High-value transactions wait for more confirmations

Protocol-defined new coin issuance in coinbase transaction

Typically decreases over time (e.g., halving schedules in some networks)

Sum of included transaction fees paid to miner

Over time, fees can become a larger share of miner revenue

Nodes reject blocks that create more than allowed

Ensures monetary policy is enforced by consensus rules

Block subsidy + transaction fees

Electricity consumption

Hardware purchase and maintenance

Cooling, facilities, operational overhead

Coin price

Network difficulty / total hash rate

Energy price and efficiency (J/TH, etc.)

Pool fees and uptime

CPUs: general-purpose, inefficient for PoW mining

GPUs: parallel computation, more efficient

ASICs: specialized chips, highest efficiency for specific algorithms

Measure of mining speed (hashes per second)

Higher hash rate increases chance of finding blocks

Performance per watt critical to competitiveness

Power delivery and redundancy

Cooling (air, immersion)

Network connectivity and monitoring

Reduce variance in rewards for individual miners

Share rewards proportional to contributed work

Pool assigns work (block templates/headers)

Miners submit “shares” (proofs of partial work)

Pool distributes payouts based on shares

PPS (Pay Per Share): predictable payouts, higher pool risk/fees

PPLNS (Pay Per Last N Shares): rewards depend on recent contribution

FPPS / PPS+: variants including fee distributions

Large pools can concentrate influence

Networks benefit from diversified mining participation

Attacker must redo work and outpace honest network to reverse history

Influence tied to real-world cost (compute + energy), not identities

If an entity controls majority of hash rate, can reorganize chain

Still constrained by economic cost and network monitoring

Miners could attempt to exclude transactions

Users can increase fees; miners/nodes may counteract via competition

Miners propose blocks; all nodes independently validate

Nodes enforce strict issuance rules; invalid blocks are rejected

Finality is probabilistic; more confirmations reduce risk

Security via computational work and energy expenditure

Example features: difficulty adjustment, block rewards

No mining; validators stake coins and propose/attest blocks

Rewards and security tied to economic stake rather than hash power

Different PoW hash functions (e.g., SHA-256 vs others)

Hardware specialization and decentralization vary by algorithm