Bitcoin mining is the process by which new bitcoins are created and transactions are added to the blockchain ledger. Here’s a simplified overview of how it works:
- Transaction Validation: When someone initiates a Bitcoin transaction, it gets broadcast to the network. Miners collect these transactions into a block.
- Proof of Work (PoW): Miners compete to solve a complex mathematical puzzle, known as the PoW algorithm. The first miner to solve it gets the right to add their block of transactions to the blockchain.
- Mining Hardware: To solve the PoW puzzle quickly, miners use specialized hardware called ASICs (Application-Specific Integrated Circuits). These machines are designed for the sole purpose of mining.
- Block Addition: Once a miner solves the puzzle, they broadcast their solution to the network. Other nodes in the network verify the validity of the solution.
- Block Reward: If the solution is valid, the miner is rewarded with newly created bitcoins and transaction fees from the transactions in the block. This is how new bitcoins are introduced into circulation.
- Blockchain Consensus: The new block is added to the existing blockchain, and the process repeats. To maintain consensus, all miners must agree on the validity of transactions and the order in which they are added to the blockchain.
- Difficulty Adjustment: To keep the average block creation time around 10 minutes, the Bitcoin network adjusts the difficulty of the PoW puzzle based on the total computational power of the network. This means that as more miners join, it becomes harder to mine new bitcoins.
Bitcoin mining is competitive, energy-intensive, and requires significant computational power. Miners play a crucial role in securing the network and ensuring the integrity of the blockchain ledger.