Bitcoin Mining

Bitcoin mining is the process where the transaction begins. When people send Bitcoins to each other, these transactions are broadcast to the Bitcoin network and collected in a pool called the mempool. The mempool is a waiting area for unconfirmed transactions. Miners, who operate specialized computers called nodes that communicate within the network, select transactions from the mempool to include in their candidate block. Along with these transactions, they include a special transaction called the coinbase transaction, which grants them the mining reward if they successfully mine the block.

Next, miners use their nodes to perform proof-of-work. They take the candidate block’s data and run it through a cryptographic hashing function (SHA-256) to produce a hash. A hash is a string of numbers and letters that appears random. The Bitcoin network has a difficulty target that the hash must meet. Specifically, the hash must start with a certain number of zeros. This difficulty target is adjusted approximately every two weeks to ensure that blocks are mined roughly every 10 minutes.

To achieve a hash that meets the difficulty target, miners change a small piece of the block’s data called a nonce and rehash the data. They repeat this process millions of times per second until they find a nonce that produces a valid hash.

When a miner finds a valid hash, they broadcast their block to the network. Other miners and nodes on the network then verify that the block’s hash is valid and that all transactions within the block are legitimate. Once verified, the block is added to the blockchain, and the miner is rewarded with newly created Bitcoins (the block reward) and transaction fees from the transactions included in the block.

Mining requires significant computational power, so miners often join forces in groups called mining pools to increase their chances of earning rewards. A mining pool is a collaborative group where miners combine their resources (nodes) to solve problems more quickly. When the pool successfully mines a block, the reward is distributed among the participants based on the amount of computational power they contributed.

To clarify the difference between the mempool and mining pools: the mempool is the waiting area for unconfirmed transactions before they are added to a block, while mining pools are groups of miners who combine their computational resources to increase their chances of successfully mining a block and earning rewards. The mempool is called such because it temporarily holds (in memory) all the unconfirmed transactions until they are processed by miners.

Bitcoin mining involves the verification of transactions, solving of mathematical problems, and addition of blocks to the blockchain. It requires significant computational power, often pooled together in mining pools to increase the chances of earning rewards. This process ensures the security and integrity of the Bitcoin network while gradually introducing new Bitcoins into circulation.