Bitcoin mining is a process involving a peer-to-peer computer network that is utilized for the securing and verification of bitcoin transactions. Through this process, fresh Bitcoins are created. Simply, these transactions are the payments that one bitcoin user makes to another. These payments occur on a decentralized network. This transaction data is then added by miners to the worldwide public ledger of past Bitcoin transactions.
A block is a definition of a group of transactions. Each time a transaction takes place between two bitcoin addresses, it is broadcasted all over the network. A Bitcoin miner attempts to secure a block and then adds it on the current ‘block’ of transactions. These blocks are attached chronologically on top of each other and together, they form the blockchain. In return, the miner earns a transaction fee, which is usually included in the sum amount that one Bitcoin user made to the other. The Bitcoin miner then competes with other miners to solve a complex mathematical puzzle. The first miner who manages to solve this puzzle earns freshly minted Bitcoins.
The purpose of the blockchain is to verify the transactions taken place to the network. Bitcoin nodes utilize the blockchain to differentiate between legitimate Bitcoin transactions and illegal attempts to double-spend, or re-spend coins.
Successful Bitcoin mining relies on resource-intensive systems and fast computational speed. The faster the computer and the greater the energy expended, the higher the chances of winning more Bitcoins. Also, like gold and other precious metals, the number of Bitcoins are scarce and only a finite number has been created, which is approximately 21 million, a number that will never be altered.
Each block of transactions has to present a proof-of-work (PoW) that confirms its validity. For this, hashing is used. A hash is data that results from a one-way mathematical function. A hash algorithm converts a randomly-large quantity of data into a fixed-length hash. Bitcoin utilizes the SHA-256 hash algorithm to produce confirmable “random” numbers in a manner that necessitates a foreseeable amount of CPU energy. When a miner generates a SHA-256 hash with a target less than or equal to the current target for a block to be accepted by the network, he or she wins Bitcoins. This reward is currently 12.5 Bitcoins, and is halved after every four years, or every 210,000 blocks. The target value is re-estimated after every 2016 blocks, which takes an equivalent time of roughly two weeks.
As time goes by, it gets more and more difficult to solve each block, a situation that serves as a regulatory factor on the Bitcoin supply. The system is designed in such a manner that every 10 mins, there is a new winner. This is also known as the ideal average mining time. This time is programmed to keep decreasing as more miners keep joining the network, while the mining difficulty increases.
This assists in warding off inflation as miners are constantly motivated to operate faster, more resource-intensive computer systems in a bid to gain more Bitcoins. Therefore, the main tasks of concern for miners consist of energy consumption and hash rate.