One of the core aspects of the Bitcoin blockchain is the use of individuals on the network to confirm transactions. It is somewhat surprising that detailed information on this subject is in short supply when compared to other topics that involve Bitcoin. Cryptoswede has created this guide which explains how Bitcoin mining works by confirming transactions. It presents the information in a series of steps that are easy to follow. You will then understand how Bitcoin moves from your wallet and how the record of that movement is added to the blockchain.
Sending and Receiving Bitcoin
The first step of the process involves an individual initiating a transaction by using their cryptocurrency wallet to send Bitcoin to an individual or a business. The individual will use the type of wallet they have chosen to sign off on the transaction by using their private or public keys. Each Bitcoin wallet provides the user with a send and a receive address, most often referred to as keys, that are protected with cryptography. The keys serve as unique identifiers of the wallet in question. This insures that Bitcoin is being sent to and from the proper wallets.
The apps for most wallets make this part of the process very easy. You simply enter in the receive address of the person you are sending the tokens to, indicate how much you want to send, and initiate the transaction with a click. In most cases, the receiver will have the Bitcoin in a matter of seconds. This is just the beginning of a longer process, however. Now the transaction has to be verified by the network.
Broadcasting the Bitcoin Transaction to the Network
The next step of the process is to make the transaction available to the Bitcoin network so that it can be verified. The wallet app broadcasts the transaction to the network so that it can be ultimately added to the blockchain. The transaction will sit in a kind of limbo, pooled together with other transactions, until it is taken by a Bitcoin miner. All unverified transactions reside together in the pool, but the pool is sometimes broken up into smaller segments.
This part of the process is a waiting game, but it does not take very long. Bitcoin has always made an effort to meet a 10-12 minute window in the processing of transactions. Some blockchains have improved upon this length of time. Litecoin and others now work to get transactions verified and added to the blockchain in less than five minutes.
Miners Begin Working on Bitcoin Transactions
Once the transaction is available on the network for pickup, the miners that will verify it spring into action. Sometimes these miners are called nodes, but miners and nodes are not exactly the same. There are some important things that distinguish the two. The miners probe the pool of pending transactions, selecting a group of them which then becomes a block. The block is a group of transactions that have not been confirmed yet. The block includes the encrypted transactions and an assortment of other data.
Here is where things get a little bit tricky and a little bit competitive in the mining process. Some miners may select the same transactions to verify. Each block can contain up to 1 MB of data. Transactions are accompanied by fees. Therefore it is common for a miner to select the transactions for their block that have the highest transaction fees. Of course, the mining rig performs all of this automatically according to how it has been configured. The individual does not go looking for specific transactions. Once the miner has selected enough transactions to fill its 1 MB block, the block is ready to be signed, or verified, and added to the public ledger that is called the blockchain.
Adding Blocks to the Blockchain
The blockchain is a decentralized distributed ledger of Bitcoin transactions. It contains a record of every Bitcoin transaction that has ever been made. It is impossible to alter the information recorded in the blockchain because each block is connected to the one before and after. This forms an unbreakable “chain” of transactions that are recorded for all time.
Signing a transaction means that the transaction has been verified by the network and it is now worthy of being added to the digital ledger. What verifying the transaction does is make it a part of the public network that is accessible to everyone. Anyone that is running the Bitcoin network has to have access to the same verification data. Otherwise the blockchain will be riddled with errors.
Remember, we said earlier that transactions could be selected by different miners. Miner A may have the same transactions, or some of them, in their block as Miner B. Only one of these miners can be given credit and a reward for solving the equation, so there has to be a way to determine who does it first. The process involves solving a complex mathematical problem.
Every block on the blockchain is given its own mathematical equation that must be solved before the block can be verified. This equation is unique to that block. What this means is that Miner A will be working to solve their own equation while Miner B does the same. Even though the blocks may contain the same transactions, the mathematical problems required to verify the block will be different.
Solving the math problem is what is known as mining. This process requires dedicated computer equipment that can be very expensive. It can also consume a lot of power which is also expensive. There is no guarantee that the miner will be the first to solve the problem and claim the reward. When mining was first introduced many people wanted to give it a try. Today, it is a project that is usually reserved for large mining farms. It just isn’t cost-effective for the solo individual working at home.
Those who want to participate in the mining process can still get in the game by joining a mining pool. This is a group of individuals who join together to purchase what is known as hash power. The provider of the hash power contracts owns and maintains all of the equipment. All the individuals need to do is pay for their contract and collect any rewards that many be had from mining. If you are interested in something like this, check out Genesis Mining. They have many options available for those who want to get involved in mining without all of the expense.
A Miner Wins the Race
Ultimately a miner will win the race to solve the math problem that accompanies a block of transactions. When this happens, the miner will achieve a valid signature for the block. This signature is then shared or broadcast to the entire network. Every other miner will have access to it. This is when the process of verifying or confirming the transaction actually begins.
Consensus in Bitcoin Transaction Verification
The blockchain has been heralded for its security and accuracy. One way that it maintains this is by having miners on the network verify or confirm the mathematical problems that have been solved by other miners. This concept is known as Proof of Work, or POW.
Basically the miner is telling the other miners that they have solved their block and signed off on it. They send their Proof of Work, which is the solution to the math problem to the network. The other miners will then verify that the signature is correct. When there is agreement that all is in order, this means that a consensus has been reached. It is only after a consensus has been reached that a block can be added to the blockchain.
It is only necessary for a majority of the miners on the network to agree that the block has been processed correctly. Now, when new blocks are confirmed they also serve to confirm the blocks under them because of the way data from each block is added to the next. Each time a block is solved, a new block must be created. There is no way for miners to solve the same block and add it to the blockchain twice.
You Don’t Need to Understand Mining to Use Bitcoin
Did you know that you don’t have to understand how Bitcoin mining works in order to use the cryptocurrency? You can still send and receive Bitcoin without ever taking part in mining tokens. That is exactly what the vast majority of Bitcoin owners do.
You can purchase Bitcoin from an individual or a regulated crypto exchange, set up a cryptocurrency wallet, trade Bitcoin on an exchange, and even get a Bitcoin debit card without knowing a thing about the mining process. Now that you have some information, though, you can at least follow along when you become involved in discussions about Bitcoin mining.