Mining

Mining means building new blocks of a Blockchain [1] and in relation to Bitcoin, it means the creation of new Bitcoins. The term is applied to mining of precious metals, and generally describes the creation of a new asset.

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The Blockchain technology is characterized by the fact that there is no central authority and is structured as a distributed peer-to-peer system [2]. In order to follow these principles a certain consensus mechanism must be implemented:

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A new block is mined every ten minutes to add new transactions to the Blockchain. These must be validated by a miner, transformed into a hash value and be recorded on the global ledger. A miner can be anyone who can provide high computing power. In return, the miner receives a certain number of Bitcoins, which is halved every 210000 blocks (since May 2020: 6.25 Bitcoins). Because the actual creation of the hash is very simple and thus a lot of Bitcoins could be created by the miners in a very short time, a complex calculation task, called Proof-of-Work mechanism, must be solved first [3].

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A hash has to start with a certain number of zeros, a target value, and consists of the transaction data, the hash from the previous block and a nonce. The difficulty is that the nonce is respectively unknown and can’t be calculated.  Therefore, the miner must try out randomly generated number combinations. This leads to a competition between the miners who try to solve the task. As soon as the first miner has solved the puzzle, he can create a new block and receives the number of Bitcoins in return [2].