How Bitcoin Mining Works

Bitcoin Mining

Just like everything, new crypto coins have to come from somewhere... Governments and banks are responsible for printing paper money. But cryptocurrency is both virtual and decentralized, so where does it come from?

Think of cryptocurrency like gold. Some of it is in circulation, but some of it still needs to be uncovered (e.g. mined) in order to be used. The difference between crypto and gold? While we don't know exactly how much gold exists in the world, we do know how much there is of any given cryptocurrency. That's because there's a preset number of coins—they just need to be released!

This process is executed by miners, who utilize high-powered hardware to solve complex computational problems, resulting in the addition of a new block onto the blockchain. In short, miners make sure that all of the activity is accurate. (No central authority = more security. That's because everyone is keeping an eye on things!) As a reward for keeping things smooth, miners get virgin (never used) bitcoins.

Anyone can be a miner, but mining is not an easy job. Miners are the operators and protectors of the Blockchain; they keep it running and the hard work that they do essentially makes them the crypto "authority". As a reward, Miners are given either virgin Bitcoin or split the cumulated blockchain fees.

It's estimated that all of the bitcoins will be mined sometime around the year 2140, and from then on, miners will be rewarded solely with transaction fees.

 How it works

Each time a Bitcoin transaction is initiated, it's first signed with your private key by your wallet, and your wallet's transaction history is scanned in order to ensure that there are sufficient funds. Your transaction is then sent to the mempool, where it waits for miners to group it together with other recent transactions in a candidate block.

Once they've filled their block with transaction data, miners rush to verify it. They do this by "calculating" a string of characters, or hash, that that is less than or equal to a target hash for their particular block. In other words, they guess an arbitrary string of numbers and letters again and again until they produce a valid one that falls below a certain value.

A cryptographic hash function is used to convert the transaction data in the block into a 64-character numeric string (hash), and changing just one character in said transaction data will result in a completely different hash. It's also important to note that this a one-way function (meaning that it's practically infeasible to reverse), and these two aspects are crucial to the security of the blockchain.

The first miner to make the correct guess gets a specified number of brand new crypto coins. (That's why it's called mining—it's like digging for gold!) As more guesses within a given time frame result in a higher likelihood that they will be the first to guess correctly, the miners with the highest computational power have the best chance to win. Don't worry, there's a consolation prize for the other miners. They get to split the transaction fees that accumulated from that block.

Hungry for more information on mining? Click here!

 

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