Summary Explanation: What is Bitcoin Mining

Bitcoin miners use specific software to solve math problems. They are issued bitcoins in exchange. Sounds good, but there is no central place or government for bitcoin regulation. With paper money, the government decides when to print and distribute money. Bitcoin miners keep the Bitcoin system protected by supporting dealings. Mining is one of the most important parts of Bitcoin and the miners ensure fairness. It is their task to keep the Bitcoin network safe, secure, and stable.

Transaction records are added to Bitcoin’s ledger of past transactions. This record of these transaction is called a blockchain, since it is looks like a chain of blocks. The blockchain confirms dealings to the network and lets them know when a transaction has taken place.

Bitcoin nodes use blockchains to legitimize transactions. It watches for attempts to re-spend coins that have already been spent.

Bitcoin mining is difficult and resource-intensive. Because it is so difficult it keeps the number of blocks found each day steady. Individual blocks contain a proof-of-work. Proof-of-work is verified by Bitcoin nodes when a block is received. The Hashcash proof- of-work is the preferred method used by Bitcoin.

Bitcoin mining allows nodes to reach a secure and tamper resistant consensus. Mining also introduces Bitcoins into the system. Miners are paid transaction fees as well as a subsidy of newly created coins.

The system serves to disseminate new coins in a decentralized manner and motivate people to provide security for the system.

It is called “mining” since it resembles the mining of other commodities or it requires extraction. Bitcoin mining makes new currency available at a pace that is slow. It has been compared to the slow rate commodities, like gold, are mined from the ground.

What is Proof of Work?

Proof-of-work is a snippet of data that is time-consuming and costly to produce. It is slow to satisfy specific requirements.

Trial and error is required before a valid proof of work is finished. It is a random process with low probability. Bitcoin uses the Hashcash proof of work system.

The Bitcoin Network Difficulty Metric

A bitcoin mining network difficulty measures how difficult it is to find a new block compared to how easy it can be. Blocks are reworked every 2016 blocks to a value that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. The key is to yield one block every ten minutes.

In theory, as more miners become members of the group, block creation rate will increase. As the rate of block production increases, the difficulty rises to compensate. This will push the rate of block creation back down. Blocks released by malevolent miners that do not meet the mandatory difficulty target will be rejected and become insignificant.

The Block Reward

When a block is found, the miner can award themselves a certain number of bitcoins. All the miners in the network must agree on this set amount. The current payment is 25 bitcoins and this value breaks in half every 210,000 blocks.

The miner is also awarded the fees paid by users sending over transactions. The fee is a motivation for miners to include these transactions in their blocks. As the number of bitcoin miners decreases, the fees paid to miners will be a substantial part of their income.