Mining and Blockchain Security: How Mining Works

Today, miners are one of the most important figures in Bitcoin and other cryptocurrencies. A miner is an individual or organization that operates within the digital transaction verification system. The role of a miner in a cryptocurrency network—gathering, verifying, and adding transactions to the blockchain—forms the foundation of the system.

What does it cost to operate a miner?

In traditional banks, the issuance of fiat currency is controlled by financial institutions and government agencies. In a cryptocurrency system, that role is held by the miner. A miner is responsible for controlling the creation of new coins based on established rules.

In this process, the miner receives a block reward—this is their direct economic incentive. The Bitcoin protocol predefines how many new BTC are generated for each new block. Initially, this was 50 BTC, but today it has decreased to 6.25 BTC. This reduction occurs after every 210,000 blocks, approximately every four years. Miners seek this reward because it represents the economic value of their work.

Candidate block: the miner’s first step

A miner’s daily work begins with searching the mempool for unconfirmed transactions. These are transactions that have been broadcasted to the network but not yet confirmed. The miner collects these transactions and groups them into a candidate block.

When creating a candidate block, the miner adds a special transaction—the coinbase transaction—which awards the block reward. This transaction is usually the first in the block and serves as the miner’s compensation.

Next, the transactions are hashed. Each transaction is hashed, then these hashes are paired and hashed again, and this process repeats until a single hash is obtained. This final hash is known as the Merkle root, and it is crucial for the block’s structure.

Proof of Work: the miner’s proof of effort

The challenging part of a miner’s work is generating a valid block hash. The miner does this through complex mathematical calculations that require significant computational effort. The Merkle root is combined with the previous block’s hash and additional parameters—typically a nonce (a pseudo-random number)—to form a block header.

The miner repeatedly changes the nonce and attempts to generate a new hash. The goal is to find a hash that is below a predetermined target value—that is, it must be less than a certain numerical threshold. The first miner to succeed gains the right to add their block to the blockchain.

This process typically takes about ten minutes. Bitcoin’s consensus mechanism is called “Proof of Work,” which proves that the miner has performed a certain amount of computational work to produce a valid hash.

Block reward and miner incentives

A successful miner receives two types of compensation: first, the block reward specified in the coinbase transaction; second, the transaction fees from all transactions included in the block. These two components constitute the miner’s total income.

The confirmed block is then added to the blockchain, each with its own unique identifier—the block hash. Afterward, the miner begins working on the next block, and the cycle repeats.

The importance of a miner’s work extends beyond economic incentives. Miners ensure the security of the entire blockchain. Each block is cryptographically linked to the previous one via hashes—this prevents any tampering. The miner’s lock-in creates a clear connection between blocks, making it computationally infeasible to alter previous blocks without redoing the entire chain.

Only through this process—through relentless computational effort and resource expenditure—does a miner contribute to the overall integrity of the cryptographic network. Each new block solidifies Bitcoin-like systems on a firm foundation.