What is Bitcoin Mining and How Does it Work? (2020 Updated)
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When you hear about bitcoin “mining,” you envisage coins being dug out of the ground. Butbitcoinisn’t physical, so why do we call itmining? Similar to gold mining, bitcoins exist in the protocol’s design just as the gold exists underground, but they haven’t been brought out into the light yet, just as the gold hasn’t yet been dug up. The bitcoin protocol stipulates that a maximum of 21 million bitcoins will exist at some point. What miners do is bring them out into the light, a few at a time. Once miners finish mining all these coins, there won’t be more coins rolling out unless the bitcoin protocol changes to allow for a larger supply. Miners get paid in transaction fees for creating blocks of validated transactions and including them in the blockchain. To understand how bitcoin mining works, let’s backtrack a little bit and talk about nodes. A node is a powerful computer that runs the bitcoin software and fully validates transactions and blocks. Since the bitcoin network is decentralized these nodes are collectively responsible for confirming pending transactions. Anyone can run a node—you just download the free bitcoin software. The drawback is that it consumes energy and storage space – the network at time of writing takes hundreds of gigabytes of data. Nodes spread bitcoin transactions around the network. One node will send information to a few nodes that it knows, who will relay the information to nodes that they know, etc. That way, the pending transaction ends up getting around the whole network pretty quickly. Some nodes are mining nodes,usually referred to as miners. These chunk outstanding transactions into blocks and add them to the blockchain. How do they do this? By solving a complex mathematical puzzle that is part of the bitcoin program, and including the answer in the block. The puzzle that needs solving is to find a number that, when combined with the data in the block and passed through a hash function (which converts input data of any size into output data of a fixed length, produces a result that is within a certain range. For trivia lovers, this number is called a “nonce”, which is an abbreviation of “number used once.” In the blockchain, the nonce is an integer between 0 and 4,294,967,296. How do they find this number? By guessing at random. The hash function makes it impossible to predict what the output will be. So, miners guess the mystery number and apply the hash function to the combination of that guessed number and the data in the block. The resulting hash starts with a certain number of zeroes. There’s no way of knowing which number will work, because two consecutive integers will give wildly varying results. What’s more, there may be several nonces that produce the desired result, or there may be none. In that case, the miners keep trying but with a different block configuration. The difficulty of the calculation (the required number of zeros at the beginning of the hash string) is adjusted frequently, so that it takes on average about 10 minutes to process a block. Why 10 minutes? That is the amount of time that the bitcoin developers think is necessary for a steady and diminishing flow of new coins until the maximum number of 21 million is reached (expected some time in 2140). The first miner to get a resulting hash within the desired range announces its victory to the rest of the network. All the other miners immediately stop work on that block and start trying to figure out the mystery number for the next one. As a reward for its work, the victorious miner gets some new bitcoin. At the time of writing, the reward is 6.25 bitcoins per block, which is worth around $56,000 in June 2020. However, it’s not nearly as cushy a deal as it sounds. There are a lot of mining nodes competing for that reward, and the more computing power you have and the more guessing calculations you can perform, the luckier you are. Also, the costs of being a mining node are considerable, not only because of the powerful hardware needed, but also because of the large amounts of electricity consumed by these processors. And, the number of bitcoins awarded as a reward for solving the puzzle will decrease. It’s 6.25 now, but it halves every four years or so (the next one is expected in 2024). The value of bitcoin relative to cost of electricity and hardware could go up over the next few years to partially compensate for this reduction, but it’s not certain. If you’ve made it this far, then congratulations! There is still so much more to explain about the system, but at least now you have an idea of the broad outline of the genius of the programming and the concept. For the first time we have a system that allows for convenient digital transfers in a decentralized, trust-free and tamper-proof way.
Hi guys I am looking for an article or something that walks through how exactly Bitcoin mining works. I have found many article that word about it but they were just concept, I am looking for a technical, computer science perspective, with the exact code for it. Thanks in advance
I made a comic explaining how bitcoin mining works. Feedback is appreciated!
Hi friends! I'm aspiring to make a series explaining the entire process of bitcoin in a comical and approachable way. I made a comic regarding how bitcoin mining works. It may contain errors, and it's a rough draft, but feedback is greatly appreciated! I'm really interested in bitcoin and where it's going. Hopefully this will be a easier learning device for many, since bitcoin is very daunting. Enjoy! Link: http://imgur.com/a/4Caif
Essentially, a group of computers (nodes) gives a group of miners (pool of miners) a math problem. Most miners use a pool because mining solo drastically increases your variance. Each miner uses their hash power (computing power) to solve (hash) portions of the math problem (in bitcoin’s case, SHA-256 algorithm) until the block is mined. Think of a block as a page in a book. In bitcoins case, it’s new transactions on the network being added to the public ledger. Once the block is mined, miners are rewarded (BTC) based on how many shares (parts of the math problem) they contributed to the block.
To understand how the bitcoin mining process works we have to go right back to the early days of cryptocurrency. When bitcoin’s original pioneer (a person or group named Satoshi Nakamoto) came up with the concept they had to find a way to ensure that all the information regarding the bitcoin transactions weren't stored in a central place. Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. How Bitcoin Mining Works. February 23, 2019 October 22, 2016 by Bits n Coins. In traditional fiat money systems, governments simply print more money when they need to. But in bitcoin, money isn’t printed at all – it is discovered. Computers around the world ‘mine’ for coins by competing with each other. Bitcoin.org is a community funded project, donations are appreciated and used to improve the website. ... In fact, this is pretty similar to how email works, except that Bitcoin addresses should be used only once. ... Mining is a distributed consensus system that is used to confirm pending transactions by including them in the block chain. It ... Bitcoin mining is done by specialized computers. The role of miners is to secure the network and to process every Bitcoin transaction. Miners achieve this by solving a computational problem which allows them to chain together blocks of transactions (hence Bitcoin’s famous “blockchain”).. For this service, miners are rewarded with newly-created Bitcoins and transaction fees.
How Bitcoin Works in 5 Minutes (Technical) - YouTube
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