What Is Bitcoin Mining, and What Do Miners Actually Do?

What mining actually is

Every few minutes a new block appears, a package of transactions appended to the chain. So that nobody can simply invent the next block, the network demands proof of computing work done, the proof of work. Whoever provides that proof first gets to contribute the block.

The Bitcoin whitepaper describes the purpose like this: proof of work answers how a majority decision is reached in an open network. Not one vote per person or per address, but one vote per unit of computing power. The valid chain is the one with the most computing work invested overall.

How the computation works

According to the Bitcoin whitepaper, miners look for a value that, run together with the block contents through the hash function SHA-256, yields a result that meets a requirement. The white paper simplifies this as a hash beginning with a number of zero bits. Strictly, the hash read as a number must be less than or equal to a threshold, the target. To do this they increment a counter in the block, the nonce, and hash again and again until the result meets the target.

• There is no shortcut. The only way is trial and error, and the lower the target, the more rarely an attempt succeeds.
• Checking the work, by contrast, is quick: a single hash shows whether a submitted block meets the target. Whether the block is valid otherwise, nodes check separately against every transaction it contains.
• Once a block is found, it cannot be changed unnoticed. Any change would alter the hash, and every later block would have to be recomputed.

It is exactly this one-way street that makes the chain hard to rewrite. Anyone wanting to change an old block would have to redo its work and that of all following blocks and catch up with the honest majority. The Bitcoin whitepaper shows that the probability of this drops quickly with every further block, as long as honest nodes control the majority of computing power. Even an attacker with that majority could not, according to the white paper, create value out of thin air or take other people’s bitcoin, only try to reverse their own recent payments.

What miners get for it

The first transaction in every block is special. According to the Bitcoin whitepaper it creates a new amount owned by the finder of the block. That is how new bitcoin enter circulation, with no issuing authority. The whitepaper’s comparison is with gold miners expending resources to add gold to circulation; here it is computing time and electricity.

How large that reward is sits in the Bitcoin Core source code. It started at 50 bitcoin per block and halves every 210,000 blocks, which happens roughly every four years. After enough halvings it reaches zero. From then on miners are funded purely by transaction fees, a transition the whitepaper itself explicitly anticipates.

That the issuance of new bitcoin declines and eventually ends is the reason for the capped total supply. How the units fit together is covered in what is a satoshi, the motivation behind the cap in the basics section.

Why a block takes about ten minutes

The computing power in the network varies a lot, depending on how many machines are currently taking part. So that the gap between blocks stays roughly the same anyway, the difficulty adjusts. The Bitcoin whitepaper calls this a moving average targeting a certain number of blocks per period. If blocks are found too fast, the difficulty rises.

The concrete values sit in the network parameters in the source: the target spacing between two blocks is ten minutes, and the adjustment window covers two weeks. That works out to exactly 2,016 blocks per adjustment period.

Four common assumptions about mining

A few ideas about mining persist that miss the core. The overview below sets the common assumption against what actually happens.

The short version: miners provide the ordering and the tamper resistance. Whether a block is valid is decided by each node on its own, against the same rulebook. The two roles are separate, and it is exactly this separation that keeps any single actor from rewriting the network.