What is Mining Mining

The term “mining” originates from a metaphor for cryptocurrency, and those engaged in mining are therefore called miners. When miners team up by sharing resources to mine, the combined computational power they possess is called a mining pool. Mining is at the core of the PoW consensus mechanism. Besides generating new coins, mining also serves as a mechanism to verify transaction validity and maintain network security.

Mining Process and Algorithms

Taking Bitcoin (BTC) as an example. Bitcoin is a blockchain network where all transactions and data are stored in blocks. In the Bitcoin network, a new block containing transactions is generated approximately every 10 minutes, and the process of creating these blocks is called mining. During this process, miners need to solve complex mathematical problems generated by the network.

These complex math problems are built on hash functions. A hash function is a complex concept in cryptography. Currently, we can think of a hash function as a mysterious black box; regardless of what format of information you input, it processes (or hashes) it into a uniform format value, known as a hash value.

In the context of mining, the input information is called a nonce. Because the nonce has a vast range of possible values, miners are almost impossible to “guess” it without computation. During the iterative calculations that consume significant time and energy, the miner who spends the most effort will be recognized as the winner. This “effort” is the work in the proof-of-work (PoW) consensus, known as Work.

Miners need to perform iterative calculations (repeated computations) through mining software to successfully complete the calculations and mine a new block. Simply put, miners try out answers that meet certain requirements from a vast amount of data one by one to successfully produce a block.

Mining Rewards

The first miner (or mining pool) to successfully complete the calculation will receive a reward. Currently, the miner who successfully mines a block on the Bitcoin network receives 6.25 BTC. The amount of Bitcoin rewarded is halved approximately every four years, with the next halving expected around 2024.

Mining Costs

During mining, factors such as expensive mining hardware, the electricity required to run the hardware, and mining pool fees collectively constitute the costs. Among these, the resource costs invested to gain a computational advantage and prioritize completing calculations account for the majority.

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Importance of Mining and the Concerns It Raises

Mining can provide increased liquidity and, through high costs of malicious activities, support trust-building in decentralized systems and maintain network security. Specifically, the combination of mining difficulty and reward mechanisms offers a security feature: through efficient computational power competition among miners, the network can verify and relay transaction records and data without relying on centralized institutions (such as banks in traditional markets).

For Bitcoin, with a fixed maximum supply, as the number of unmined bitcoins decreases, the competition for mining power becomes increasingly fierce. Now, an individual with average computational power can no longer mine Bitcoin, which introduces risks related to centralization.

At the same time, the computational power and hardware resources invested in unsuccessful blocks are also viewed as a form of “environmentally unfriendly waste.” These factors have led many to seek more sustainable and energy-efficient consensus protocols beyond PoW-based mining, such as Proof of Stake (PoS).