How cryptocurrency mining works

Mining is a mechanism that supports decentralized cryptocurrency networks. Instead of relying on banks or governments for money issuance, most blockchain projects use mining to create new coins and ensure the security of the network.

The Role of Miners in the Network

In Bitcoin-like networks, mining participants (nodes) perform a critical function — they collect raw transactions, verify their correctness, and add them to the blockchain. This process not only generates new units of cryptocurrency but also ensures the integrity of the entire system without the need for a central authority.

Technical Validation Process

When a miner starts working, he takes unconfirmed transactions from the network's memory and combines them into a candidate block. In this block, the coinbase transaction is recorded first — a special entry that sends the block reward to the miner himself.

Next, cryptographic processing begins. Each transaction is transformed into a hash, these hashes are paired and hashed again. The process repeats layer by layer until a single hash—the Merkle root—is obtained. This root hash is then combined with the hash of the previous block, a random number (nonce), and other parameters.

Method of trial and error

This is where the true work of Mining begins. The resulting block hash must be below the target value set by the protocol. Since changing any parameter completely alters the output hash, miners are forced to iterate through various nonce values, repeatedly hashing until they find the suitable result.

The first miner to successfully find a suitable hash gets the right to add a block to the chain and receives a reward. In Bitcoin networks, this process takes about ten minutes on average.

Proof of Work and Reward System

The unique hash of each confirmed block serves as its identifier and proof of work done. This is why Bitcoin's consensus algorithm is called Proof of Work — it is simply impossible to forge or guess the correct hash without performing computational work.

The block reward is defined by the protocol and is periodically reduced. Initially, miners received 50 BTC for each block. The system provides for a reduction in the reward every 210,000 blocks, approximately every four years. Currently, the reward is 6.25 BTC per block.

This structure ensures that the supply of Bitcoin remains limited and predictable, while miners are incentivized to keep the network running.