A post by Amir Taaki (genjix) on Bitcoin Media (@BitcoinMedia) describes how and why bitcoin mining performs “work”. Excerpts:
Another property of a good hash function is small changes in input lead to large changes in output. This makes it difficult (practically impossible) to reverse a hash function.
A bitcoin miner is constantly hashing a block to see if it passes the above check. If not then it slightly modifies the block and tries again. It keeps doing this until it finds a block that passes. A valid block has been found, and the miner will broadcast this block to the network.
A miner’s task is to make a block and keep modifying that block so that it produces a different hash, until that hash passes a [specific] test.
Creating a block is not easy. It takes computational processor cycles. Ergo it takes electricity. Ergo it costs money. Creating a block usually has miniscule profit or even negative expected value. As more people mine and create blocks, the network drives up the difficulty squeezing out all the profit.
Written on 25 Jan 2012.