Understanding Bitcoin Mining: Its Meaning and Mechanism

The Essential Meaning of Mining

Mining refers to the process of verifying and recording transactions on the blockchain. In traditional banking systems, a central authority manages the circulation of currency, but this is different for cryptocurrencies like Bitcoin. From the issuance of new coins to the approval of transactions, everything is supported by a decentralized system known as mining. Understanding the meaning of mining is essential for grasping the overall blockchain technology.

The Role of Mining in Decentralized Systems

Conventional fiat currency is printed and managed by governments and financial institutions. In contrast, there is no central authority in cryptocurrency. Instead, new coins are gradually generated through a mechanism called Mining. This process follows rules predefined in the underlying protocol. The consensus algorithm determines how these rules are actually implemented.

The Specific Mechanism of Bitcoin Mining

The role of a mining node is to collect unconfirmed transactions, validate them, and organize them into candidate blocks. Miners add transactions (coinbase transactions) that include block rewards for themselves, and this transaction is usually recorded at the beginning of the block.

Next, each transaction is hashed, and the outputs are combined in pairs. These pairs are then hashed again—this process is repeated until a single hash, known as the Merkle root (root hash) of the Merkle tree, is generated.

Difficulty Adjustment and Proof of Work

The root hash is combined with the previous block's hash, the nonce (pseudo-random number), and other parameters. By hashing these elements, the block hash of the candidate block is generated.

Mining is successful only when the generated block hash is below a pre-set target value. In other words, miners need to try different nonces repeatedly and perform a huge number of hash calculations. The miner who first discovers a valid hash verifies the block and earns the block reward. Typically, this entire process takes about 10 minutes.

The Mechanism of Block Rewards and the Reduction Mechanism

Once a block is verified, it is added to the blockchain, and the miners move on to the processing of the next block. The valid hash generated by the miners serves as proof of their effort. This is why Bitcoin's Proof of Work consensus algorithm is emphasized.

Block rewards are defined by the Bitcoin protocol and are halved every 210,000 blocks (approximately every 4 years). The initial block reward of 50 BTC has been gradually reduced to the current 6.25 BTC, and further reductions are scheduled to occur regularly in the future. This design ensures that the total supply of Bitcoin is capped at approximately 21 million coins.