Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of fraud or third party interference.
In order to achieve this, Ethereum uses a consensus algorithm called Proof of Work (PoW). PoW is a system that requires miners to “show work” in order to earn the right to add a new block to the blockchain.
The work is essentially a mathematical puzzle that is very difficult to solve, but easy to verify once it has been solved.
Once a miner solves the puzzle, they broadcast the solution to the network. The other miners then verify that the solution is correct and add the new block to the blockchain.
NOTE: Warning: Ethereum consensus is a complex concept and requires extensive research and understanding to fully comprehend. Investing in Ethereum-based projects involves risk, and it is strongly advised that you become familiar with the technology before investing. Additionally, make sure you understand the legal implications of investing in cryptocurrency and consult a financial advisor if necessary.
This process is known as “mining” and the miners are rewarded with Ether, the native cryptocurrency of Ethereum.
The main advantage of PoW is that it is a very secure consensus algorithm. It is highly unlikely that any one miner or group of miners could control more than 50% of the network, which would allow them to maliciously manipulate the blockchain.
The downside of PoW is that it is very resource intensive. In order to solve the puzzle, miners need to expend a lot of energy and this costs money.
Ethereum is currently working on transitioning to a new consensus algorithm called Proof of Stake (PoS) which will be much more efficient and less resource intensive.
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