How does Bitcoin mining work?

Introduction

Bitcoin mining is a complex process that secures the Bitcoin network, validates transactions, and introduces new bitcoins into circulation. Here’s how it works:

Transaction Verification and Block Creation

Miners collect pending transactions from the mempool (a waiting area for unconfirmed transactions).

These transactions are compiled into a new block.

Miners calculate the Merkle root, which is a single hash representing all transactions in the block.

The Mining Process

Proof-of-Work (PoW) Puzzle:
The core of Bitcoin mining involves solving a cryptographic puzzle, known as Proof-of-Work. This puzzle requires miners to find a specific hash value that meets certain criteria.

Hash Generation

Miners create a block header containing various pieces of information, including:

Version number

Previous block hash

Merkle root

Timestamp

Difficulty target

Nonce (a variable that miners can change)

The block header is then put through the SHA-256 hashing algorithm, producing a 64-digit hexadecimal number called a hash.

Finding the Nonce

Miners repeatedly change the nonce value and rehash the block header until they find a hash that meets the network’s difficulty target.

This process requires significant computational power and electricity.

Network Validation:
Once a miner finds a valid hash:

The new block is broadcast to the network.

Other nodes verify the solution.

If valid, the block is added to the blockchain.

Mining Rewards

Successful miners receive two types of rewards:

Newly minted bitcoins (block reward)

Transaction fees from the included transactions

The block reward halves approximately every four years, controlling the rate at which new bitcoins enter circulation.

Mining Difficulty

The network automatically adjusts the mining difficulty every 2,016 blocks (roughly every two weeks) to maintain an average block time of 10 minutes.

Conclusion

Bitcoin mining plays a crucial role in maintaining the network’s security and decentralization by making it computationally expensive and energy-intensive to attack or manipulate the blockchain.