Mining and proof of work

Mining is how Bitcoin decides who adds the next block, and it is how new bitcoin enters circulation. Miners compete by spending computing power on a guessing puzzle. This lesson explains the puzzle and why it protects the network.

The job miners do

A miner gathers waiting transactions into a candidate block and checks that they follow the rules. The network will not accept that block until the miner wins a contest.

The puzzle

The miner adds a number, called a nonce, to the block and hashes it. The rule is that the block's hash must come out below a target set by the network. Hashes are unpredictable, so there is no shortcut. The miner changes the number and tries again.

Across the network, mining machines make hundreds of quintillions of these guesses every second. The first miner to find a valid hash broadcasts the block, and every other node can check it with a single calculation. Hard to produce and easy to check: that is proof of work.

The reward

The winning miner earns newly created bitcoin plus the fees paid by the transactions in the block. This is the only way new bitcoin is created. Since April 2024 the newly created part has been 3.125 bitcoin per block, and Lesson 5 covers how it shrinks.

Difficulty keeps blocks ten minutes apart

If more miners join, blocks would start arriving faster. So every 2,016 blocks, about two weeks, the network adjusts the target to bring the average back to ten minutes. More mining power makes the puzzle harder. It does not create more bitcoin.

Why this secures the network

To rewrite history, an attacker must redo the proof of work for the block they change and for every block after it. They must then overtake the honest chain, which takes more computing power than the rest of the network combined. This is often called a 51% attack.

On Bitcoin, the cost in machines and electricity is the deterrent. Smaller proof-of-work coins are easier targets: MIT researchers have recorded more than 40 deep chain rewrites on them since 2019.

The cost: energy

Proof of work uses a lot of electricity by design, and that is the main criticism of it. Cambridge researchers estimated that Bitcoin mining used about 120 terawatt-hours in 2023, between 0.2% and 0.9% of global electricity demand. Mining is now done with specialised machines, usually in large facilities, by miners who pool their efforts and share rewards.

Other networks secure themselves differently. Ethereum switched to a method called proof of stake in September 2022, which cut its energy use by about 99.95%. Lesson 8 covers it.