Introduction to Bitcoin Mining
In the Bitcoin network, transactions continuously flow in, requiring nodes to bundle these transactions. Since all network nodes are equal, how does the system determine which node can bundle transactions and prevent duplicate bundling?
The solution lies in Proof-of-Work (PoW), a consensus mechanism that awards mining rights based on computational effort.
How Mining Works
Any full node can attempt to create a block, but the block must meet two critical conditions to be accepted by the network:
- Legitimate transactions – All included transactions must be valid.
- Hash meeting target difficulty – The block's hash must be less than or equal to a predefined target value.
While validating transactions is straightforward, meeting the hash requirement requires mining—a process of finding a Nonce (a random number) that, when hashed with the block header, produces a value below the target:
Hash(Block Header) ≤ Target Bitcoin uses the SHA-256 algorithm, generating a 256-bit output (~2²⁵⁶ possible values). The target determines mining difficulty—fewer leading zeros mean lower difficulty.
Example:
- Block #1000 (2009):
00000000c937...(8 leading zeros) - Block #560,000 (2019):
0000000000000000002c7b...(18 leading zeros)
Mining Difficulty Adjustment
Bitcoin aims for a 10-minute average block time. However, mining speed fluctuates with network hash rate. To maintain consistency:
- Difficulty updates every 2016 blocks (~2 weeks).
Adjusted using:
Difficulty = Difficulty_1_Target / Current_TargetHere,
Difficulty_1_Targetis a constant (2²²⁴−1).
Target recalculation:
If actual block time > 10 minutes, the target increases (reducing difficulty), and vice versa. Adjustments cap at ±4x per cycle.
Mining Algorithms & Efficiency
Compressed Target (nBits)
The 256-bit hash is compressed into a 4-byte nBits field for storage efficiency:
- Convert hash to base-256.
- Prefix with
0x00if first digit > 0x7F. - Store length + first 3 digits (padded if needed).
Example: 1000 → 0x0203e800 (stored in block header).
Hash Rate Units
Mining power is measured in:
- H/s (Hashes per second)
- KH/s (10³ H/s)
- MH/s → EH/s (10⁶ → 10¹⁸ H/s)
Mining Economics
Mining Pools
To stabilize earnings, miners join pools that:
- Split work into smaller tasks.
- Reward based on shares (partial solutions).
- Prevent cheating by directing coinbase rewards to the pool’s address.
Payout formula:
Earnings = (Block Reward) × (Your Shares / Total Shares) Network Hash Rate
Estimated via block time and difficulty:
Hash Rate = (Difficulty × 2²³²) / Block Time Blockchain Security
Confirmations
A transaction gains trust through confirmations (subsequent blocks). Bitcoin considers 6 confirmations (~1 hour) irreversible, as rewriting the chain becomes computationally impractical.
Block Propagation
Nodes broadcast blocks efficiently via INV messages:
- INV: Sends transaction/block hashes.
- GetData: Requests full data if new.
FAQ
1. Why does mining need PoW?
PoW ensures decentralized consensus by linking block creation to computational effort, preventing spam and double-spending.
2. What happens if difficulty is too high?
Longer block times reduce transaction throughput. The protocol auto-adjusts to maintain ~10-minute blocks.
3. How do miners get paid?
Via block rewards (new BTC) and transaction fees.
👉 Learn more about Bitcoin’s economic model
4. Can a 51% attack rewrite history?
Theoretically yes, but it’s economically unviable due to the massive hash power required.