Bitcoin Mining: Definition & How it Works

Usually, newcomers in the digital currency or cryptocurrency world have a load of questions. If you’re new or somewhat a bit familiar with Bitcoin, you might have probably wondered where the digital currency “Bitcoin” comes from, or how it is created or mined.

In fact, you might have asked questions such as: What is bitcoin mining? How does bitcoin mining work? How can you mine Bitcoins? The aim of this article is to answer these questions and explain bitcoin mining in very simple terms.

This article was written specifically for people who have average, little, or no technical knowledge about Bitcoin, how it is being created, and how its network is being secured during the process of bitcoin mining.

Generally, this article discusses the following topics:

  • Definition of bitcoin mining
  • How does bitcoin mining work: how can you mine Bitcoins?
  • Activities that bitcoin miners are involved in

Definition of bitcoin mining

Bitcoin mining is a process in which the Bitcoin network security is decentralized and Bitcoins are created or brought into existence and circulated. The main purpose of bitcoin mining is not to create new Bitcoins; the creation or mining of new Bitcoins is an incentive in the Bitcoin network/system.

The purpose of bitcoin mining is to achieve decentralization. Bitcoin mining runs in a decentralized way in which no central bank, nobody, and no group of people have control over the Bitcoin network or blockchain; all users of the network collectively exercise control without passing through any intermediaries.

Bitcoin mining secures the bitcoin system, verifies bitcoin transactions or payments made by clients/users on the bitcoin network, and stretches the boundaries of its network-wide consensus without any central authority controlling or dictating its activities.

Although the process of mining Bitcoins has been compared to that of mining gold and other precious metals, both Bitcoin and gold are mined in completely different ways; however, their mining processes are similar in one way: the more both of them are mined, the more their fixed supply is reduced, and they become more difficult to mine and supply.

How does bitcoin mining work: how can you mine Bitcoins?

Without the activities of bitcoin miners who use the computing power of computers to guess 64-digit hexadecimal numbers (hashes) that are less than or equal to the target hashes, and maintain the bitcoin network, it would be impossible to decentralize and secure the bitcoin network, mine or create Bitcoins, and validate transactions between the network’s users or clients.

Anyone who is interested in getting into bitcoin mining should take note that bitcoin mining is similar to the gold rushes of the past, around the early times when gold was discovered. Many people who made attempts to find fortune during the early gold rushes, lost everything that they had because they didn’t consider a number of important things before investing time and money in it.

During the gold rushes, few people became rich; however, even those who became rich experienced hardship on the way. Bitcoin mining has its fair share of challenges and bears many similarities with traditional gold rushes and other get-rich-quick schemes which people often don’t consider in their entirety before investing time and money in them.

You need powerful hardware and convenient electricity (energy) supply before you can successfully mine Bitcoins. Before starting, you have to estimate the quantity of electricity you would need, and determine whether your investment in mining Bitcoins will be greater or lesser than what you could earn after you start mining.

During bitcoin mining, the computing power of each computer (in the network) uses a cryptographic process to estimate the value of bitcoin assets in each transaction, process the transactions, create Bitcoins, synchronize everybody in the system, and secure the network.

Bitcoin mining works by using a designated bitcoin mining software program on a computer to guess 64-digit hexadecimal numbers based on cryptographic hash algorithms; the solution to the problems earns bitcoin miners 2 rewards: new Bitcoins, and transaction fees from all transactions in the blocks thru add to the blockchain.

Any bitcoin miner who wants to add their block and enter transactions into the blockchain has to provide proof or answer to a particular challenge. Even with the use of computers, it’s difficult to provide proof; however, if proof is provided, other people in the network can easily verify it. The process of verifying proof is known as proof-of-work or PoW.

Bitcoin mining software program can be acquired by anyone who is interested in becoming a bitcoin miner and using computing power to solve puzzles or problems, create Bitcoins, process transactions, and secure the network.

The more powerful a bitcoin miner’s computers is, the faster they would be able to guess 64-digit hexadecimal numbers, beat the remaining crowd of Bitcoin miners, and earn bitcoin mining rewards. The bitcoin miners with supercomputers usually earn most of the time, if not all the time.

On any given day, when bitcoin miners watch out for transactions in the network, the first miner to guess a 64-digit hexadecimal number (associated with a transaction) would mine a new “block” on the “blockchain network”; once the block is accepted, the miner will receive or earn a particular number of Bitcoins as the reward for their work: in other words, the first bitcoin miner who solves a puzzle is entitled to put a new block on the blockchain which is a chain or network of blocks.

It takes about 10 minutes for a block to be mined, and an hour for 6 blocks to be mined; over time, the blocks expand into a long chain called “blockchain”. After every 10 minutes, new Bitcoins are mined or created; each bitcoin is worth $55,000+ as at the time of writing. The power used to make one bitcoin transaction successful can provide energy to about 10 houses per day in the USA.

The blocks are part of the public ledger: the public ledger is divided into blocks which are logs of transactions that contain Bitcoin, and are arranged in batches. Each new block is referenced to its previously created block; this process continues and the whole set-up is referred to as the “blockchain”.

Each Bitcoin mining process mines new blocks which are ledger files that permanently record every old and new Bitcoin transaction. When bitcoin transactions are carried about between any two parties, bitcoin miners accredit and record each transaction on a block.

After every transaction is verified, each miner sends and receives validation messages from every other miner; this instigates confirmations on the network, and the block or ledger keeps track of the Bitcoins but doesn’t keep track of its owners or their bitcoin wallets’ balances.

Activities that bitcoin miners are involved in

Before Bitcoins can be successfully mined, bitcoin miners have to work in the bitcoin network and be involved in the following activities:

1. Watching out for transactions

Whenever clients or users make transactions on the network, bitcoin miners have to watch out for the transactions and validate them after ensuring that the signatures are correct, and outputs that are being spent haven’t yet been spent around the time that miners are checking out transactions.

2. Maintaining the blockchain and watching out for new blocks

Bitcoin miners maintain or service the existing blockchain; they start doing so by sending out requests for other nodes to provide a history of the existing blocks on the blockchain before they (the bitcoin miners) joined the network. 

After getting the history of the existing blocks, the bitcoin miners watch out for new blocks launched on the network, validate each block, and ensure that each block contains a valid nonce.

A “nonce” is a 32-bit field that has a value usually adjusted by bitcoin miners so that the target of the network will be greater than or equal to a block’s hash.

3. Building a block

A bitcoin miner can start building their own block after getting a copy of the existing blockchain which must be up-to-date.

To start building a block, a bitcoin miner transmits transactions into a new block which is an extension of the most recent block they know; in addition, they have to ensure that each transaction included in their new block is valid.

4. Finding a nonce

Most of a miner’s work is involved in looking for a nonce that would validate their block; in fact, it’s very challenging for most miners who put in a lot of effort to find a nonce in order to get their block validated.

5. Expecting their new block to be accepted 

After a bitcoin miner finds a block, there is no guarantee that it’ll be accepted into the consensus blockchain. Luck plays a big role in blocks being accepted into the consensus blockchain; bitcoin miners have to hope that other miners consider and accept their block, and start mining on it instead of mining on their competitor’s block.

6. Earning profit

Any bitcoin miner whose block is considered and accepted will earn profit for their work. The profit is new Bitcoins and any transaction fees from transactions associated with their block.

The Bitcoin protocol requires the services of miners in order for the activities listed above to be carried out successfully; bitcoin miners’ services help to realize the goals of the Bitcoin mining process.


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