Blockchain Academy
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Mining

Mining is a gaining of coin in a blockchain using PoW algorithm. As used in words 'mining gold from a mountain', it literally means mining coins, such as Bitcoin or Ethereum, to get the reward of work.

Mining in the blockchain is that after creating a block, the particular currency of the blockchain protocol will be given as a reward.

Let's take a look at how it works.

  1. The transactions in nodes in the blockchain network are to be shared to neighbor nodes in order.
  2. Each node verifies the transactions according to the defined checklist.
  3. The verified transactions are put into the Mempool as standby status.
  4. These standby transactions are arranged in order by higher transaction fee and then put into candidate blocks.
  5. When these blocks reaches 1MB, the miner starts calculation to find the hash value, which is lower than the target hash value, by inputting nonce value in the block header in order until a block is created.
  6. After finding the hash value successfully by inputting the nonce value, a new block is created and spread to other node.
  7. Other nodes start to verify if this new block is reliable according to the defined verification check list.
  8. When verification is complete, this new valid block is linked with the previous chain and the transactions in it are being approved.
  9. Each block stores a coin-base transaction, which contains miner's address where the reward for block creation goes.
  10. The transaction in this new block is deleted from the Mempool, and other mining nodes repeat the process from five to nine.

The reason of this mining process at PoW is as follows.

Satoshi Nakamoto invented Bitcoin with a total number of 21 million and it is issued by rewarding miners with 50 bitcoins for creating one block.

There are no other ways to get bitcoins than mining and the mintage over 21million is impossible. The reward of 50 bitcoins is gradually reduced in half at the point where the 210,000th block is created. (The reward for creating a block at 12.5BTC on Feb 13, 2019) Developers control the number of currency this way.

Also, the public blockchain has to be maintained all the time where each member records, verifies, and manages the network. The blockchain requires voluntary participants because the more members there are, the greater the security of the data in the block. Especially with the process number five above, the miner needs to put tremendous CPU power for hash calculation of the nonce in block header from 0 increasing one by one. The incident of giving coins as rewards of creating blocks using miner's CPU is how to run the network in this economy system.