What is Mining
The term "mining" originated from the analogy to cryptocurrencies, and those who engage in mining are therefore called miners. When miners share resources to mine in a team, the total computing power they possess is called a mining pool. Mining is the core of the PoW consensus mechanism. In addition to mining new coins, it also serves as a mechanism to validate transaction validity and maintain network security.
Process and Algorithm of Mining
Taking Bitcoin (BTC) as an example, it is a blockchain network where all transactions and data are stored in the form of blocks. In the Bitcoin network, a block containing transactions is generated every once in a while (about every 10 minutes), and the process of generating this block is the mining process. In this process, miners need to solve complex mathematical problems generated by the network.
These complex math problems are based on hash functions, a complicated concept in cryptography. For now, we can think of a hash function as a mysterious black box that processes (or hashes) any format of information inputted into it and converts it into a standardized value, the hash value.
In the context of mining, the input information is called a nonce. Since the nonce has a vast range of values, miners are unlikely to "guess" it without computation. The miner who "pays" the most in the iterative calculation process, which consumes a lot of time and energy, is considered the winner, and this "payment" is the work in Proof of Work (PoW) consensus.
Miners need to perform iterative calculations through mining programs to successfully complete the operation and mine a new block. In simple terms, miners need to try out answers one by one from a vast amount of data to successfully produce a block.
The first miner (or mining pool) to successfully complete the calculation will receive a reward. Currently, a miner who successfully mines a block in the Bitcoin network will receive 6.25 BTC. The number of bitcoins awarded as a reward halving occurs every four years, and the next BTC reward halving is expected to occur around 2024.
Cost of Mining
Factors such as the cost of expensive mining machines and other hardware, the electricity required to run mining machines, and mining pool fees all contribute to the cost of mining. Among these, the resource costs invested to achieve computational advantage and complete the calculation first account for the majority.
Importance and Related Concerns
Mining provides more liquidity while supporting trust-building in decentralized systems through the high cost of malicious behavior, thereby maintaining network security. Specifically, the combination of mining difficulty and the corresponding reward mechanism provides a security mechanism for the network, allowing transactions, data validation, and relay to be completed without the protection of centralized institutions (such as banks in traditional markets).
For Bitcoin, which has a fixed maximum supply, the competition for computing power in mining becomes increasingly fierce as the number of unmined bitcoins decreases. Now, an individual with average computing power can no longer mine bitcoins, which brings about risks related to centralization.
At the same time, the computing power and resources invested in unsuccessful block mining are seen as an "environmentally unfriendly waste." These factors have led many people to seek more sustainable, energy-efficient consensus protocols beyond PoW-based mining, such as Proof of Stake (PoS) consensus.
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