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The Basics

Mining is the process of adding new transaction records to Bitcoins(BTC) ledger of past transactions, called the blockchain. By utilizing Bitcoin’  protocol, the miners confirm and update the public Bitcoin ledger with new transaction records, detect and prevent miners who are trying to cheat the process (by attempting to re-spend used coins, or creating fake transaction info to the ledger), and add recently discovered coins to the Bitcoin(BTC) pool. The main purpose of mining is to organize the history of transactions in a manner that is practically unmodifiable, since every block has a unique hash or fingerprint which contains all the transactions within and any change to the transactions within will change the hash or fingerprint.. Bitcoin(BTC) nodes collect and record the sequence of events by downloading and verifying the blockchain.

The reason the above is called “mining” is that it requires an expenditure of effort and time to make new blocks and Bitcoins which roughly parallels traditional mining . The only difference is that the supply of coins is not dependent on the number of miners due to Bitcoins in built difficulty adjustment that automatically limits coin production by increasing difficulty the more miners join in.

Like traditional miners, Bitcoin miners use specialized tools to mine Bitcoin called a “mining rig”. A mining rig is a computer system that does all the necessary computing for “mining.” Types of mining range from CPU mining which was the first type of mining to today’s more professional ASIC mining. Miners keep on trying new methods and updating old ones to mine Bitcoin more efficiently.

Mining Process

The process of mining can be simply compared to solving a very complex computational puzzle called a proof-of-work or PoW scheme. This scheme works in a way that a solution to the puzzle  is very hard to find and cannot be faked, but confirming that the miner did the correct computation is easy. The mining rigs do all the computational tasks over time, but they do need constant vigilance and maintenance. The difficulty of this “puzzle” increases as the number of miners increases, so coin production and blocks produced stay constant at 10 minutes per block.

If a miner or a group of miners successfully solve a problem, the solution is shared to all miners who in return, verify that the solution is correct. This will then result in the creation of a new block, and it will be recorded to the blockchain (Bitcoin’s public ledger). The miner who discovered the new block will be rewarded with Bitcoin. Any blocks discovered by mischievous miners that do not meet the difficulty level of the problem are instantly rejected by the other miners in the network. Successful discovery of a new block adds coins to the overall Bitcoin money pool by a reward of Bitcoin to the discoverer of the block.


A good reward system incentivizes all participants and ensures the security of the network.  When a block is discovered, miners who successfully contributed to this discovery are rewarded a certain amount of Bitcoin’s which are halved after every 210,000 blocks. Bitcoin(BTC) started with a block reward of 50 BTC and currently as of block 420,000 the current reward value per block is 12.5 BTC. Upon the discovery of block 630,000, the reward value will be halved to 6.25 BTC . The reward serves the purpose of distributing new coins in a decentralized way and inspires miners to furnish the security for the system. The decreasing reward values also ensure that scarcity comes into play and that the total inflation rate for Bitcoin decreases as more Bitcoin is mined. Further incentivization is achieved