What is Mining in Blockchain?

The Purpose of Mining

Generally, people conceive mining in blockchain as a way to obtain bitcoins or other cryptocurrencies. Well, it is partially true but this is not the main purpose of mining. In actual fact, the main objective of mining is to ensure the perpetuity and security of the decentralized network. The network comprises nodes that store the distributed ledgers in the form of the blockchain.

Bitcoins or other cryptocurrencies are awarded to the miners for their effort in maintaining the integrity of the blockchain by validating the transactions in the blockchain. Because of the reward system, miners (nodes) will stay on in the network and help to prevent network downtime. Just imagine if there is no reward, nobody will want to connect to the network and it will just cease to exist.

How does Mining work?

The mining process starts when miners are trying to validate new transactions and record them on the blockchain. The miners are competing to solve a difficult mathematical puzzle based on a cryptographic hash algorithm. The solution found is called the Proof-Of-Work. When a block is ‘solved’, all the transactions contained in the candidate block are considered validated, and the new block is confirmed. This new block will be appended to the blockchain. The time taken to confirm a new block is approximately 10 minutes for bitcoin, for other coins it is much faster. So, if you send or receive some bitcoin, it will take approximately 10 minutes for the transaction to be confirmed.

Miners receive a reward when they solve the complex mathematical problem. There are two types of rewards: new bitcoins and transaction fees. The amount of bitcoins created decreases every 4 years or  every 210,000 blocks to be precise. Today, a newly created block creates 12.5 bitcoins. This number will keep going down until no more bitcoin will be issued. This will happen around 2140, when 1 millions bitcoins will have been created. After this date, no more bitcoin will be issued.

Miners can also receive rewards in the form of transaction fees. The winning miner can collect all the transaction fees in the block. As the amount of bitcoin created with each block diminishes, the transactions fees received by the miner will increase. After 2140, the winning miner will only receive transaction fees as his reward.

Leave a Reply