How Does Bitcoin Mining Work?

What Is Bitcoin Mining?

Bitcoin mining is the method of recording and validating transactions on the blockchain, introducing new bitcoins into the market.

Miners use hardware and software to solve a cryptographic puzzle, and the first one to crack it is rewarded with bitcoin. This process helps ensure the integrity and functionality of the Bitcoin network.

Before venturing into mining, assess the costs and complexities of hardware setup to determine if it's worthwhile.

Key Takeaways

  • Bitcoin miners earn rewards by creating new blocks on the blockchain.

  • Mining has become extremely competitive, making rewards scarce.

  • Success is linked to mining capacity and hardware efficiency.

  • A GPU or ASIC is essential for anyone looking to mine bitcoin effectively.

  • Use Bitcoin to refer to the overall concept and network, and bitcoin for individual coins.

How Bitcoin Mining Works

When a transaction occurs, it is bundled into a block and put through a cryptographic algorithm known as hashing, generating a 64-digit hexadecimal number.

The Hash and Target

An example of a hash:
0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee

Miners work to find a hash lower than the target hash by adjusting the nonce. This trial-and-error process continues until a miner succeeds in generating a valid hash.

In the decimal system, numbers are based on factors of 100, meaning each digit can represent a value between 0 and 99 (e.g., 1% equals 0.01). In computing, this system is simplified to base 10, which uses the numbers 0 through 9.

The hexadecimal system, on the other hand, operates on base 16, where each digit has 16 possible values. The term "hex" comes from the Greek word for six, and "deca" refers to ten. Since the standard numeric system only provides 10 digits (0–9), the hexadecimal system introduces six additional characters, represented by the letters A through F.

The Hash, Target, and Nonce

Miners must guess a hash that is lower than the target hash by adjusting the nonce. This guessing process takes significant computational power.

The Mining Process

The mining program runs the process automatically, testing millions of hashes per second. Only the miner who finds a valid hash wins the bitcoin reward.

In Bitcoin mining, miners are essentially trying to guess a number that is smaller than the target hash. The target hash is a specific hexadecimal value designed to require numerous attempts to solve, ensuring fairness and security in the mining process.

To find this correct value, miners adjust a piece of data called the nonce (short for "number only used once"). The nonce plays a crucial role in generating 64-bit hexadecimal numbers that the network needs. However, because the nonce field in the block has a limit of about 4.5 billion possible numbers, miners roll over to an additional field called the extra nonce when they reach this limit. This combination of the nonce and extra nonce allows for an enormous number of attempts, significantly increasing the chances of finding a solution.

Each time information is hashed (run through a cryptographic algorithm), it produces the same result unless something in the input changes. So, the mining software starts with a nonce of zero and continuously increases it by one, recalculating the hash each time. This process continues until the miner finds a hash that is smaller than the target hash, earning the right to add the next block to the blockchain.

Here are examples of hashes and the criteria for determining if they would be successful for the miner:

image

If you were to hash "Hello World!" using an online SHA256 generator, the output might look like this:

7f83b1657ff1fc53b92dc18148a1d65dfc2d4b1fa3d677284addd200126d9069

By simply adding a digit, like "Hello World!0," and hashing again, you'd get a completely different result:

e59f8bdf1305e382a4919ccefd613d3eebae612aa4c443f3af2d65663de3b075

Increase the number again to "Hello World!1," and rehash it, and you'll see yet another distinct output:

9e2be792bcd092bd5ab7bdac7bda1ae5d0db9f6d052a3c819615900c7c06e9be

This continuous change in output illustrates the core of Bitcoin mining. Instead of manually trying these combinations, miners use specialized software that performs trillions of attempts automatically, searching for the correct hash value to solve the puzzle.

Mining Block 490163

To further understand the mining process, take the example of block 490163, as recorded on Blockchain.info. The miner's program that solved this block started with a nonce (a value starting at zero and incrementing with each attempt) and increased it until it found a valid hash that met the target.

For block 490163, the winning nonce was 731511405. The block was mined by AntPool, one of the most successful mining pools, and it confirmed 1,768 transactions in this particular block. If you'd like, you can explore these transactions by visiting the specific block's transaction summary on Blockchain.info.

Mining Difficulty and Block Time

You'll also notice that each block's mining difficulty is periodically adjusted. Bitcoin's network aims to create one new block roughly every 10 minutes. However, the actual time can vary, and the system adjusts the mining difficulty every 2,016 blocks, or roughly every two weeks.

The difficulty level is calculated using this formula:

Old difficulty x (2,016 ÷ average time to mine in the last period)

On March 9, 2024, the mining difficulty level was set at 79.35 trillion (T). This means that the hash values miners must find are exceedingly small, making mining a highly competitive and resource-intensive process.