It is interesting how Bitcoin works. So, each transfer in the Bitcoin network is confirmed and recorded in a block, which is then added to a single “chain” (blockchain). The essence of mining is to “find” or “mine” a new Bitcoin block by means of resource-intensive computations. These calculations are performed simultaneously by many miners on special equipment.
Thus, mining performs several functions: verifying transactions in the Bitcoin blockchain, creating blocks, and issuing new Bitcoins. Miners compete with each other when mining a new block.
Schematically, the mining process for PoW (Proof-of-Work), on which Bitcoin operates, looks like this:
Transactions: Users send transactions to the network. Transactions contain information about operations such as cryptocurrency transfers or actions with digital assets.
Transaction collection: Miners collect the new transactions that have been sent to the network and form a list of transactions to create a new block. This list is called a “hash tree”, which helps to ensure that the blocks of data that are transferred between peers in a peer-to-peer network are intact and unaltered.
Hash calculation: Miners begin to solve the cryptographic problem of finding a certain number (nonce) that, when combined with information from the block header, will give a hash of the block starting with a specified number of zeros. This process requires a lot of computing power and random attempts to find the correct hash.
Confirmation: The first miner to find the correct hash solves the puzzle and gets the right to create a new block. This miner literally confirms the correctness of transactions in the block and guarantees its legitimacy.
Creating a block: The miner creates a new block that contains a list of collected transactions and information about the block header. The block header contains the hash of the previous block, the hash tree, network statistics, and other parameters.
Block distribution: After creating a block, the miner relays it to other nodes in the network. This step helps to spread information about the new block throughout the network.
Confirmation and joining: The rest of the network nodes check the block’s hash and confirm that it is correct. After successful verification, the new block is joined to the blockchain, becoming part of the continuous blockchain.
Reward: For successful completion of the task, the miner receives a reward in cryptocurrency for creating a new block and also receives commissions for processing transactions on the block. The mining reward is an incentive for miners to ensure the security and functioning of the network.
Continuation of the process: Mining continues again, and the process of creating new blocks and confirming transactions is repeated continuously on the blockchain network. Each new block becomes the basis for the future work of miners in the network.