Crypto News

What is Bitcoin Mining?

Bitcoin is a digital currency that requires a process called mining. Bitcoin mining is a network-wide competition to create a cryptographic solution that meets specific criteria. When the correct solution is achieved, a reward in Bitcoin and a fee for the work completed is awarded to the miner(s) who first achieve the solution. This reward process will continue until 21 million Bitcoins are in circulation. Once that number is reached, Bitcoin rewards are expected to cease and miners will be rewarded through fees paid for work done.

How does Bitcoin mining work?

Here’s a simple example to explain the process. Let’s say you ask your friends to guess a number between 1 and 100. Your friends don’t have to guess the exact number; they just have to be the first to guess a number less than or equal to yours. If you think of 19 and one friend thinks of 21, another 55, and then 83, they lose because they all guessed more than 19. But they have to guess again, and their next guesses are 16, 41, and 67. The person who guesses 16 wins because he was the first to guess a number less than or equal to 19. In this case, the number you choose, 19, represents the target hash that the Bitcoin network generates for a block, and the random guesses from your friends are also guesses from miners. Bitcoin mining is similar but on a much larger scale. It uses cryptography, encryption, distributed computing, and technology to verify and secure transactions. Here are the main ideas behind mining that make it work.

What is Hash?

At the heart of Bitcoin mining is the hash. A hash is a 64-digit hexadecimal number that results from running the information contained in a block through the SHA256 hash algorithm. This part of the process takes very little time to complete—in fact, you can generate a hash in less than a second by pasting some text into an online SHA256 hash generator. This is the encryption method Bitcoin uses to generate block hashes. But decoding that hash back into what you pasted is the tricky part: A 64-digit hash can take centuries to decode on modern hardware. The hash might look like this (this is the previous snippet run through the hash generator): a54f83a5db7371eeefa2287a0ede750ac623e49a8ba29f248eb785fe0a678559 If you change a value in that content, such as changing a “t” to an “a”, the hash will change. Here is the same paragraph, but the first word is misspelled as “Aa” instead of “At”: fbfa33ff980d1492b3a9275a1eb945d89bd6b699ca19c3c470021b8f253654af This is a number called the block hash, which is used in the header of the next block as part of the encrypted information. Each block uses the hash of the previous block, which has the effect of chaining them together, thus giving rise to the term “blockchain”.

What is the target hash?

The target hash, used to determine mining difficulty, is the number miners are trying to solve when they mine. This number is a hash generated by the network. So the block hash might look like this (block 786,729): 00000000000000000005a849c28eb24b8a5e04fcecc1ccb3eb2998e4730a456e The target hash looks like this: 0x175c739 This number is a condensed representation of the difficulty target: 0…000005c73900000…0 So miners need to generate a number equal to or less than the above number.

What is Bitcoin Mining?

Bitcoin mining requires the miner to generate a hash and add another number to it called a nonce or “one-time number”. When a mine starts, it always starts with a zero. The nonce changes by one unit with each attempt—first 0, then 1, 2, 3, etc. If the hash and nonce generated by the miner are greater than the target hash set by the network, the attempt fails and the miner tries again.
Every miner on the network does this until they come up with a hash and nonce combination that is less than or equal to the target hash. The first one to reach that target gets their proposed block added to the chain, gets a reward and fee, and a new block is opened. Once that block is full of information (about a megabyte), it is closed, encrypted, and mined.
The Bitcoin network is made up of thousands of mining devices working 24 hours a day. Since the mining reward goes to the first person to solve the problem, they are all competing. This competition has led miners to form pools to gain an advantage over other miners because they need more computing power to increase their chances of winning.
Bitcoin network mining speeds fluctuate, but averaged a little over 611 exabytes per second on May 1, 2024—that's 611 followed by 18 zeros. If it takes about 10 minutes to mine a block, that's about 3.6 x 1023 hash values ​​to mine a new block.

Proof-of-Work

The mining process is called proof-of-work (PoW)—the work done to create the winning hash is seen as proof that the miner validated the transactions in the block, hence the name proof-of-work. PoW is sometimes referred to as a consensus mechanism, but proof-of-work is only one part of consensus. Consensus is reached after miners add blocks to the blockchain and the rest of the network validates them using hashes (reaching consensus). This does not require much energy or computing power because each mining node also does this while mining the latest block. As new blocks are added, the network validates them.

Confirm

Each block contains the hash of the previous block—so when the hash of the next block is created, the hash of the previous block will be included. Remember that if even one character changes, the hash changes, so the hash of each subsequent block will change. When you mine a block and close it, it is not confirmed yet. The block is not confirmed until five blocks later, when it has gone through a total of six confirmations. That said, it is possible to change the information in a block before it has gone through six confirmations, but that is very unlikely because the network would have to be controlled by someone trying to change the information for it to work.

Award

The reward for successfully validating a block is Bitcoin. In 2009, you would have received 50 Bitcoin for mining a block. But the block reward halves every 210,000 blocks (or about every four years), so in 2013 the reward dropped to 25, then 12.5, then 6.25. At Bitcoin's last halving event in April 2024, the reward changed to 3.125 Bitcoin. The first block of the Bitcoin blockchain is called the Genesis block. It holds the first 50 Bitcoins ever awarded. Another incentive for Bitcoin miners to participate in this process is transaction fees. In addition to the reward, miners also receive fees from any transactions included in that block. When Bitcoin reaches its expected limit of 21 million (expected around the year 2140), miners will be rewarded with transaction processing fees that network users will pay. These fees ensure that miners still have an incentive to mine and keep the blockchain network running. The idea is that competition for these fees will keep them low after the halving event.

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