If you are new to the crypto space, this article will help you understand the process of mining in plain and simple words.
In a bitcoin network, transactions make up the record that is stored by every node participating in the network. Each node in the bitcoin network is responsible for relaying information and keeping information. A distributed ledger is kept by everyone, hence decentralization.
But then there are some special nodes called as miners. What do they do, they verify transactions and add blocks to the existing blockchain present. In return, these miners get rewards in the form of newly generated bitcoin. The total supply of bitcoin is capped at a figure of 21 million, whereas the circulating supply is much less than this. Miners bring newly minted coins into the circulation. Just like mining for extracting gold, bitcoin miners extract bitcoins.
There are plenty of miners in the bitcoin network, so how do they get rewards? The answer, they compete.
In order to add a block to the existing blockchain and get rewards, miners compete to find a specific number known as ‘nonce’. When this number is combined with the data of the block and is passed through a hash function, the output has to fall within a certain range. This nonce number can be anywhere between 0 and 4,294,967,296.
Whichever blocks find this nonce number first gets to add the block in the blockchain and is selected for the rewards. But finding this number is much harder than it sounds. Random guesses are made by the miners to find the correct nonce number. There is a possibility that there might be more than one nonce number that give the correct output, and there is also a possibility that there is no nonce that gives that correct output when combined with the block data and passed through the hash function. In such a scenario, different block configuration is tried by the miners.
As evident, computing power plays a major role in all of this. A mining node with large computing power has a greater chance of finding the correct number. It takes an average of 10 minutes to mine a block. With every block added, the number of bitcoin in circulation increases. It is expected that all the 21 million bitcoins will be in circulation sometime around 2140.
Miners remove the need of a central controlling party and hence, bitcoin provides a system that is tamper-proof, transparent and decentralized. It provides a global framework of currency transcending the borders. Now it remains to be seen how much it is able to integrate the current traditional financial framework with all the possibilities that it provides.