Today let’s have a look at Bitcoin Mining. What is it and how does it work?
Tip: Also read “What is Bitcoin?” and “How does Bitcoin work?.
Part 1: What is Timestamping?
To further understand what bitcoin mining is, it is important to be familiar with timestamping. Simply put, timestamping is a way of proving that something occurred at a particular time.
Part 2: Distributed Timestamp Server
To form a distributed timestamp server – a linked list of blocks of data to be timestamped and broadcasted publicly – as a peer-to-peer network, the Bitcoin network uses a Proof-of-Work (PoW) system.
This “work” is often referred to as bitcoin mining.
Part 3: POW and Bitcoin mining
To further understand the connection between bitcoin mining and PoW, we must always remember that – in the Bitcoin network – a new block minting must contain a PoW to be accepted by the rest of the network.
PoW requires miners to find a number called a nonce (an arbitrary number that can only be used once), such that when the block content is hashed along with the nonce, the result is numerically smaller than the network’s difficulty target.
Part 4: Mining Rigs
If the mining process comes across as difficult to understand, well that’s because it really is a complex process – particularly the math involved in it. That’s why some miners invest in expensive mining rigs to have higher chances of solving the equations that the blockchain generates.
Some miners also cooperate by combining their computational resources to gain an added advantage over other miners. This is called a mining pool.
Part 5: Block Rewards
As compensation for “putting in work” and for assembling a block of transactions that is accepted and verified by other miners, the successful miner or pool of miners receive block rewards and transaction fees – both in the form of bitcoins.
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Part 6: Bitcoin Miners are important
Although it may seem that miners are only motivated by the rewards that they may potentially receive, they actually play an important role in the Bitcoin network as they keep the blockchain consistent, complete and unalterable.
All in all, PoW – alongside the chaining of blocks – makes modifications of the blockchain extremely hard. Hence, making the Bitcoin network secure and less prone to malicious attacks.
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- DeFiChain: Earn Incredibly High Yields
Ciao Daniel 🙂
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