On this page, we try to explain the concept of mining. We explain this phenomenon on the basis of cryptocurrency mining and we explain how blockchain technology works. We use Bitcoin as an example in the text below, but there are several cryptocurrencies (altcoins) that use this technology.
When you buy crypto, there is a certain form of mining on the blockchain associated with it. You may have heard about it before, but how does mining actually work now? What are miners, what do they actually do and why are they so important for network security?
Miners are the ones who check the transactions on the network and add them to the blockchain. They collect a bundle of transactions in a block and then put their computer to work so that it is the first to find the solution needed to publish the block. Will you be the first to publish the block with a valid solution? Then you will receive a reward in the form of new cryptocurrency. That is why this process is also called mining; it is the way new bitcoins and other cryptocurrencies are created.
Mining and the blockchain
What is the connection between mining and the blockchain? Therefore you need to know what the blockchain exactly is. A blockchain is a chain of blocks that are connected in a very smart way. Each block is filled with data in which you will find, among other things, the transactions and a fingerprint of the previous block. Because every new block contains a fingerprint of the previous block, a direct link with the entire history of the blockchain has been recorded in the new block. If you change something in a block, the fingerprint changes and so does the fingerprints in all blocks change. This also applies to the adjustment of a particular transaction.
As a technical explanation, a fingerprint of a block is called a hash. This is a random sequence of letters and numbers that have always the same length. To generate a hash, miners use a complicated mathematical formula in which all information is put in the block.
And what is mining then?
Mining can best be explained as a computer that is continuously calculating a hash that is the solution for the next block.
To make things more difficult for the miners, the protocol requires that the first X number of characters of the solution be a 0 (zero). That is the ingenious part of the Proof of Work (PoW) mechanism used by almost every cryptocurrency. This is the measure that determines how difficult it is to generate the correct hash and thus the solution.
The miner who is the first to find and publish the right solution will receive a reward in the form of a bitcoin.
Mining and security
What makes bitcoin mining more secure than any other transaction system? It is a decentralized payment protocol. This means that the transaction system is not managed by a central party, but by thousands of computers on the network.
Do you want to influence the bitcoin transaction system? Then you must have access to more than half of all computers on the bitcoin network. This is also called a 51% attack. Bitcoin’s network is currently so extensive that it is virtually impossible.