Basics of Blockchain 2 – Bitcoin Mining
Publish on 2022-01-21
What’s Bitcoin Mining?
Bitcoin mining is the process where Bitcoin nodes earn new Bitcoins by adding transaction records or blocks to Bitcoin's public ledger blockchain.
To understand Bitcoin mining, we need to know about concepts including miners, Bitcoin tokenonomics, PoW consensus algorithms, mining machines and Bitcoin network security, as these topics are all involved in the bitcoin mining process, namely that they answer these questions: what are miners, what to mine, how to mine, what is used for mining and what do they mine for.
What Are Miners?
Before understanding who miners are, we need to know what a Bitcoin node is. Simply put, a Bitcoin node is a computer that runs the Bitcoin program using the required hardware and computing power. No matter what the entity of the Bitcoin node is, Bitcoin nodes essentially have only one function: to participate in and maintain the secure operations of the Bitcoin network.
In order to achieve this goal, different Bitcoin nodes will have different tasks or functions. For example, all Bitcoin nodes will be responsible for verifying transactions and transmitting information; some nodes will be mainly responsible for storing the complete public ledger of the Bitcoin blockchain; some nodes specialize in adding new transaction records or blocks to the blockchain, these are known as Bitcoin miners.
What to Mine?
What are miners mining? Of course, they are mining for Bitcoins.
In the Bitcoin network system, miners are mainly responsible for adding transaction records to generate new blocks on the blockchain. As a company pays its employees, in order to incentivize miners to add new blocks, the Bitcoin network pays miners with newly minted Bitcoins as mining rewards. Mining rewards consist of two parts: block rewards and transaction fee rewards. Transaction fee rewards refer to the total fees of all transactions included in the block and vary depending on the specific trading volume and transaction fees. Generally, this part of the network rewards is negligible and miners pay more attention to block rewards.
Block rewards refer to the system rewards contained in a transaction, or the first transaction in each block, which, as mentioned above, is the payment awarded by the Bitcoin system to miners who added new blocks. According to Bitcoin’s protocol, Bitcoin’s first block was mined in 2009 and the block reward was 50BTC. For every 210,000 blocks that are mined (roughly in four years), the reward for mining a block is reduced by half. To date, three Bitcoin halvings have already taken place. A single Bitcoin miner recently won 6.25 BTC by adding a block to the Bitcoin Blockchain.
How to Mine?
Different from what we know about rare metal mining, Bitcoin mining refers to installing and running Bitcoin mining software and leveraging computing power. Mining is a process of adding a block to the blockchain by solving math problems through the PoW algorithm. The theory of the algorithm: Based on a given difficulty target, the SHA-256 algorithm is used to calculate the block hash. As long as the hash is less than the difficulty target, it means that a block is successfully mined.
As AscendEX Academy’s 11th lesson on blockchain mentioned, miners need to hash the block header data before calculating the hash of a block, including the version, previous block hash, Merkle root, timestamp, difficulty Bits, and nonce. The two main concepts that are directly associated with Bitcoin mining are nonce and difficulty Bits. Specifically, miners need to confirm the block version, previous block hash, Merkle root, timestamp, difficulty Bits, and then hash the block head data continuously until a block header hash that is lower than the defined target is found, which means a block is successfully mined and the block is valid. Essentially, mining is actually a process in which a computer uses the algorithm to solve a math problem, so this process is often described as the problem-solving process.
What Is Used for Mining?
According to the PoW algorithm, we already know that in order to successfully mine a block, we must solve a difficult math problem. Of course, the process only requires computing power when it comes to mining difficulty, as computers, which are known as mining machines, are used to solve the problem, rather than manpower. In the Bitcoin mining market, the main mining machines include ASIC miners and GPU miners (known for GPU mining). Among them, ASIC miners are the most efficient mining machines for SHA256 algorithm-based bitcoin mining, so ASIC miners are the most popular mining machines in the current market. As the computing power of a single mining machine is small, the possibility for the miner to successfully solve the problem and mine a Bitcoin is slim, which leads to Bitcoin mines, mining pools and other ecosystems in the market.
What do They Mine for?
According to the Bitcoin Protocol, Bitcoin mining is necessary due to:
1. Bitcoin mining is an important part of Bitcoin token issuance mechanism, which clarifies the rules of new coin issuance and distribution.
2. Bitcoin mining is an integral part of Bitcoin’s complete peer-to-peer payment system used to validate transactions.
3. Bitcoin mining is actually a way to prioritize transactions with limited transactional throughput.
4. Bitcoin mining mechanism provides rewards for miners, incentivizing them to participate in and maintain the operations of the network, helping improve the security of the network. As we often say, the more nodes involved in Bitcoin mining, the stronger the computing power of the network, and the more secure the whole network will be.