Mining

Written by Max Hinchman

Introduction

Mining refers to the process of verifying transactions and recording the transaction onto the blockchain. Mining and other validation processes are what allow blockchain networks to achieve decentralization and function without a trusted third party.

Each blockchain network has consensus algorithm that tells the network participants how to comply with the network protocol. The purpose of mining is to update the blockchain with new transactions, and to protect the validity of the information on the digital ledger. Miners are also responsible for the issuance of the cryptocurrency because a miner is compensated each time their block is recorded onto the blockchain through a block reward.

In the case of bitcoin, the consensus algorithm is called proof-of-work. Proof of work consensus algorithms require miners to validate transactions through a set process which is known as mining a block. Whenever transactions are broadcast on a bitcoin network, the miners start to organize the information into strings of text. This process converting data into the strings of text through a mathematical function is known as hashing. Eventually the process leads the miners hashing the nonce, the previous block’s hash, and the root hash of the new transaction data. The miners then repeatedly hash this combination of information, using different nonces, until a miner finds the valid block hash.

Because the probability of the finding the valid hash first is low, smaller miners combine computing resources into pools. Their pooled computing resources are then used in order to find the valid hash. The block reward is then split evenly among the participants in the pool based on the amount of work they contributed.

In the Bitcoin network, the difficulty associated with finding the valid block has is adjusted according the total computational power of the network at any given time to ensure a block is added roughly every 10 minutes.

Suggested Reading

How Bitcoin Mining Works by Coindesk

What is Cryptocurrency Mining by Binance Academy