The role of miners in the cryptocurrency network

What is mining and why do miners need it

The functioning of the cryptocurrency ecosystem depends on miners - individuals and organizations that ensure network security and transparency. The main task of a miner is to verify transactions and generate new coins without relying on a centralized authority.

In traditional financial systems, currency printing and issuance are controlled by state institutions. Cryptocurrencies, however, are structured differently - their issuance occurs through decentralized code operating within a pre-defined protocol. The enforcement of these rules is overseen by what is called a consensus algorithm.

Specific functions of a miner in Bitcoin

Bitcoin’s backbone is the work of miners, whose functions are outlined below:

Transaction recording and grouping. A miner verifies unconfirmed transactions by searching through the mempool, collecting them, and forming a candidate block. During this process, the miner adds their own transaction, called a coinbase transaction - this transaction is added at the beginning of the block and is equivalent to the block reward.

Technical process: how mining works

After registering transactions, the miner performs complex mathematical operations:

Initially, each transaction is hashed using a hash function. Then, the resulting data pairs are organized, and their hashes are repeated until a unique value is obtained - this is called a Merkle root identifier.

The Merkle root is combined with the hash of the previous confirmed block, as well as a pseudo-random number called a nonce. Hashing all these elements produces a candidate block hash.

The success of a miner depends on how low this hash value is compared to a pre-set target value. To find the correct value, the miner iterates through different nonce values - this process typically lasts about ten minutes.

The first miner to find the reward

The miner who first discovers a hash that exactly matches the target will convert it into a valid block and earn the block reward. Generating this hash is direct proof of the miner’s work - and based on this principle, Bitcoin’s consensus mechanism is called Proof of Work (Proof of Work).

Block reward and its history of changes

Block reward is an economic incentive that motivates miners to support the network. The Bitcoin protocol precisely defines what this reward will be.

According to the protocol, the block reward decreases every 210,000 blocks (which happens approximately every four years).

In the early days, the reward for one block was 50 BTC. Over many years, as the block reward halved repeatedly, it is now 6.25 BTC. This specific mechanism ensures that the issuance of Bitcoin gradually diminishes, helping to protect against inflation.