How does Bitcoin mining work?
On blockchains that utilize a proof of work consensus algorithm, the transactions are processed via a process called “mining”. Mining is also how new bitcoins (and various other cryptocurrencies) are made. Before getting into the details of how this all works, it’s important that you first understand the basics of blockchain tech.
A blockchain is essentially a decentralized, digital ledger that records all transactions made on a particular network. Each block on the blockchain contains a number of transactions, and once a block is added to the blockchain, the data within it is unchangeable. For a more in-depth explanation of how blockchains work, read this article.
When a transaction is made on the Bitcoin network, it’s grouped with other transactions into a block. Miners, who are individuals or companies running powerful computer systems, then compete to solve a complex mathematical problem that is related to the block of transactions. The first miner to solve the problem gets to add the block to the blockchain and is rewarded with new bitcoin. This is how new bitcoins get created.
Random thought: I suppose the term “mining” is a reference to the precious metal industry, and the miner who solves the problem is imagined to be “digging up” new bitcoins.
Anyway, rewarding the miners for verifying transactions and adding new “blocks” (packets of data) to the blockchain is what keeps the network running and secured.
How do miners secure the network?
The consensus mechanism that Bitcoin uses is called “proof of work“. To put it simply, a consensus mechanism is a method used by the network to agree on which transactions are valid and should be added to the blockchain.
Miners play a crucial role in securing the Bitcoin network via the proof of work algorithm. They do this by solving complex math puzzles to validate transactions and add them to the blockchain.
Think of it like a big puzzle. The miners use their computers to solve the puzzle, and the first one to solve it gets to add a “block” of verified transactions to the “blockchain” ledger. When they do, they’re rewarded with a specific cryptocurrency. Miners contributing to the bitcoin network earn their rewards in bitcoin (new bitcoins get created). Miners helping to secure the monero network earn their rewards in monero etc. etc.
In addition to newly minted coins, the miners who successfully solve the puzzle also earn the transaction fees which are associated with the transactions included in the block.
The network is built in such a way that if a block is added with invalid transactions, other miners on the network will quickly reject it as they will not be able to validate it. It’s extremely difficult, if not impossible, to add false data – making the network secure and accurate.
This is the technical process..
The process of mining begins with a transaction, which is broadcasted to the network. Miners then collect these transactions into a block. Miners then have to verify that the transactions are valid. To do this, the miner makes sure the sender has enough funds, and that the bitcoin hasn’t already been spent (prevents “double spending”).
Once the transactions have been verified, the miner must solve a complex mathematical puzzle in order to add the block to the blockchain. The completion of the puzzle is called the proof of work, and it requires the miner to find a specific number, called a nonce, that when combined with the other data in the block and run through a cryptographic hash function, results in a specific output.
This output is called the “hash”, and it must meet certain requirements in order for the block to be added to the blockchain. These requirements are known as the difficulty target, which is adjusted every 2016 blocks, to ensure that the average time to find a block is 10 minutes.
The puzzle solving process is done by the miner’s computer and it can be very computationally expensive, meaning it requires a significant amount of computational power and energy to solve. The miner that solves the puzzle first gets to add the block to the blockchain and gets the reward.
It’s important to note that the competition among the miners is very high, and solving the puzzle is not easy as it requires a lot of computational power. This is why miners often join mining pools, which is a group of miners who come together to share resources and increase their chances of solving a puzzle and adding a block to the blockchain.
What is the Bitcoin halving?
Every 210,000 blocks, the rewards the miners get for verifying transactions and adding “blocks” to the blockchain get decreased by 50%.
In other words, the amount of new bitcoins being created gets reduced by 50% after every 210,000 blocks – which works out to being every 4 years.
This periodic decrease in mining rewards is known as the “halving”, and it has been a major catalyst for the bull markets.
To learn more about how the “halving” impacts the cycles in the crypto market, and how you capitalize off these cycles – read this article.
What equipment is used to mine Bitcoin?
Mining bitcoin has become competitive, so specialized hardware has become the standard for anyone who wants to actually make money.
The days of profitably mining with your laptop are over, for bitcoin anyway. There are other currencies you can mine with basic equipment though.
Bitcoin mining is now done using ASIC miners. ASIC stands for Application-Specific Integrated Circuits. These machines are purpose built, and they’re much more powerful and efficient than regular computers.
The ASIC chip in the machines are designed to perform the specific type of calculations needed to validate transactions.
How do ASIC miners work?
The ASIC mining machine is connected to the internet and it communicates with the Bitcoin network to receive the transactions that need to be verified and added to the blockchain. The mining machine then performs the necessary calculations to verify the transactions and solve the puzzle. Once the puzzle is solved, the miner can add the block to the blockchain and receive the block reward.
What are the best Bitcoin miners on the market?
The most popular ASIC miners currently on the market are the Antminer S29, the Whatsminer M30S, and the Innosilicon T3+. Obviously though, tech evolves fast and these companies will be making upgrades, and new competition will surely hit the market.
Do some more in-depth research if you’re planning on making a purchase.
Summary
On proof of work blockchains, “miners” compete to solve complex math problems to verify transactions and add a “block” to the blockchain. When they do, they’re compensated with a “block reward”, which consists of new bitcoin that gets created along with all the transaction fees associated with that particular block.
The process of “mining” helps to keep the network secure by making sure that only valid transactions are added to the blockchain. It also helps to prevent any one miner or group of miners from taking control of the network.
“Mining” is typically done using specialized machines called ASICs. The most popular and efficient ASIC mining machines currently on the market are the Antminer S19, the Whatsminer M30S, and the Innosilicon T3+.
