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Bitcoin Mining

How Bitcoin Mining Works

We all ask our selfs where do bitcoins come from?

Miner users use software specially designed and programmed to solve mathematical problems and miners are  issued a certain number of satoshies in exchange. This provides a smart way to issue the currency and also creates a will and desire for more people to mine.

IS Bitcoin Secure?

Bitcoin miners help keep the Bitcoin network secured by confirming transactions. Mining is an important  part of Bitcoin that ensures fairness while keeping the Bitcoin network stable, safe and secure and faster.

Bitcoin mining is intentionally designed to be very complicated so that the number of blocks found each day by miners remains steady. Individual mined blocks must contain a POW to be considered valid. This POW is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashes per second proof of work.

The primary purpose of mining is to allow Bitcoin users to make their own Bitcoins.

This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.

Bitcoin mining is so called because it resembles the mining of other commodities.

What is Proof of Work?

A proof of work is a small piece of data which is difficulty (costly, time-consuming) to produce so as to satisfy certain requirements.

Producing a proof of work can be a random process with low probability, so that a lot of trial and error is required on average before a valid proof of work is generated. Bitcoin is using hashes per second proof of work.

What is Bitcoin Mining Difficulty?

Bitcoin mining a block is difficult because the SHA-256 algorithm hash of a block’s header must be lower than or equal to the target in order for the block to be accepted by the Bitcoin network.

How it works: The hash of a block must start with a certain number of zeros and its about 8 to 10 zeroes in a transaction hash. The probability of calculating a hash that starts with many zeros is very low, therefore many attempts must be made.

The Bitcoin Network Difficulty Metric

The Bitcoin mining network difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. This will yield, on average, one block every ten minutes.

As more miners join, the rate of block creation will go up. As the rate of block generation goes up, the difficulty rises to compensate which will push the rate of block creation back down. Any blocks released by malicious miners that do not meet the required difficulty target will simply be rejected by everyone on the network and thus will be worthless.

The Block Reward

When a block is discovered, the discoverer may award themselves a certain number of bitcoins, which is agreed-upon by everyone in the network. Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks.

Additionally, the miner is awarded the fees paid by users sending transactions. The fee is an incentive for the miner to include the transaction in their block. In the future, as the number of new bitcoins miners are allowed to create in each block dwindles, the fees will make up a much more important percentage of mining income.