Bitcoin Mining

Bitcoin mining is the process of validating the information in a blockchain block by generating a cryptographic solution that matches specific criteria. When a correct solution is reached, a reward in the form of bitcoin and fees for the work done is given to the miner who reached the solution first.

Over time, the reward for mining Bitcoin is reduced. This reward process continues until there are 21 million bitcoin circulating. Once that number is reached, the bitcoin reward will cease, and Bitcoin miners will be rewarded through fees paid for the work done.

Validating transaction information and maintaining the integrity of the blockchain is mining’s purpose, while the bitcoin reward is the incentive to mine. Bitcoin mining is necessary to maintain the ledger of transactions upon which Bitcoin is based. Miners have become very sophisticated over the past several years, using complex machinery to speed up mining operations. Bitcoin mining has generated controversy because it is not considered environmentally friendly.

Here’s a simplified example to explain the process. Say you ask friends to guess a number between 1 and 100. Your friends don’t have to guess the exact number; they just have to be the first to guess a number less than or equal to your number. If you are thinking of the number 19 and a friend comes up with 21, another 55, and yet another 83, they lose because they all guessed more than 19. But if you have three friends left, and the next one guesses 16, they win, and the others don’t get a chance to guess. The one that guessed 16 was the first to guess a number less than or equal to 19.

In this case, the number you chose, 19, represents the target hash the Bitcoin network creates for a block, and the random guesses from your friends are the guesses from the miners.

At the heart of Bitcoin mining is the hash. The hash is a 64-digit hexadecimal number that is the result of sending the information contained in a block through the SHA256 hashing algorithm. This part of the process takes little time to complete—in fact, you can generate a hash in less than one second, pasting some content into an online SHA256 hash generator. This is the encryption method used by Bitcoin to create a block hash. However, decrypting that hash back to the content you pasted is the difficult part: a 64-digit hash can take centuries to decode with modern hardware.

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