The Bitcoin system consists of users (users control wallets through keys), transactions (transactions are broadcast to the entire Bitcoin network), and miners (through competitive calculations, a blockchain is generated that reaches consensus on each node. The blockchain is a distributed public ledger that contains all transactions that have occurred in the Bitcoin network).

Bitcoin miners manage the Bitcoin network by solving proof-of-work problems with a certain amount of work—confirming transactions and preventing double spending. Since hash operations are irreversible, it is very difficult to find the random adjustment number that matches the requirements, requiring a trial-and-error process with a predictable total number of times. At this time, the proof-of-work mechanism comes into play. When a node finds a solution that matches the requirements, it can broadcast its results to the entire network. Other nodes can receive the newly solved data block and check whether it matches the rules. If other nodes find that the requirements (the computational target required by Bitcoin) are met by calculating the hash value, then the data block is valid and other nodes will accept it.

Satoshi Nakamoto likened the production of Bitcoin by consuming CPU power and time to the consumption of resources by gold mines to inject gold into the economy. Bitcoin mining and node software mainly use peer-to-peer networks, digital signatures, and interactive proof systems to initiate zero-knowledge proofs and verify transactions. Each network node broadcasts transactions to the network. After these broadcast transactions are verified by miners (computers on the network), miners can use their own proof of work results to express confirmation. Confirmed transactions are packaged into data blocks, which are strung together to form a continuous chain of data blocks. Each Bitcoin node collects all unconfirmed transactions and groups them into a data block. The miner node appends a random adjustment number and calculates the SHA256 hash value of the previous data block. The mining node continues to try again until it finds a random adjustment number that makes the generated hash value lower than a certain target.

Mining is the process of increasing the supply of Bitcoin currency. Mining also protects the security of the Bitcoin system, preventing fraudulent transactions and avoiding “double spending”, which is the spending of the same Bitcoin multiple times. Miners provide algorithms for the Bitcoin network in exchange for the opportunity to receive Bitcoin rewards. Miners verify each new transaction and record them in the general ledger. Every 10 minutes, a new block is “mined”. Each block contains all transactions that have occurred from the generation of the previous block to the present time. These transactions are added to the blockchain in sequence. We call the transactions included in the block and added to the blockchain “confirmed” transactions. After the transaction is “confirmed”, the new owner can spend the bitcoins he obtained in the transaction.

Miners will receive two types of rewards during the mining process: new coin rewards for creating new blocks, and transaction fees for transactions contained in the blocks. In order to obtain these rewards, miners compete to complete a mathematical problem based on the cryptographic hash algorithm, that is, using Bitcoin mining machines to calculate the hash algorithm. This requires powerful computing power. The number of calculation processes and the quality of the calculation results are used as proof of the miner’s computing workload, which is called “proof of work”. The competition mechanism of the algorithm and the mechanism that the winner has the right to record transactions on the blockchain, these two guarantee the security of Bitcoin.

Miners also receive transaction fees. Each transaction may include a transaction fee, which is the difference between the input and output of each transaction record. During the mining process, miners who successfully “mine” a new block can receive a “tip” for all the transactions contained in the block. As the mining reward decreases and the number of transactions contained in each block increases, the proportion of transaction fees in miners’ income will gradually increase. After 2140, all miners’ income will be composed of transaction fees.

Mining is a decentralized settlement process in which each settlement verifies and settles the processed transactions. Mining protects the security of the Bitcoin system and enables the entire Bitcoin network to reach consensus without a central authority. The invention of mining makes Bitcoin unique. This decentralized security mechanism is the basis of peer-to-peer electronic currency. The reward for minting new coins and transaction fees is an incentive mechanism that can regulate miner behavior and network security, while completing the currency issuance of Bitcoin.

Bitcoin is issued and transactions are completed through mining, which is minted at a certain but slowing rate. Each new block is accompanied by a certain number of brand new bitcoins created from scratch, which are rewarded to the miner who found the block as a coinbase transaction. The reward for each block is not fixed. It takes about 4 years to mine every 210,000 blocks, and the currency issuance rate is reduced by 50%. In the first four years of Bitcoin’s operation, each block created 50 new bitcoins. Each block created 12.5 new bitcoins. In addition to the block reward, miners also receive handling fees for all transactions in the block.

Graphics card “mining” requires the graphics card to be fully loaded for a long time, which will consume a lot of power and the electricity bill will also increase. There are many professional mining farms at home and abroad in areas such as hydropower stations where electricity bills are extremely low, while more users can only mine at home or in ordinary mining farms, so the electricity bill is naturally not cheap. There was even a case in a community in Yunnan where someone was frantically mining, which caused a large area of ​​the community to trip and the transformer was burned.

Bitcoin withdrawals require a key of up to several hundred digits, and most people will record this long string of numbers on their computers. However, problems such as hard disk damage often occur, which can cause the key to be permanently lost, which also leads to the loss of Bitcoin.

Mining is actually a competition of performance and equipment. Some mining machines are composed of more such graphics card arrays, with dozens or even hundreds of graphics cards. The hardware price and other costs are very high, and mining has considerable expenditure. In addition to machines that burn graphics cards, some ASIC (application-specific integrated circuit) professional mining machines are also being put into the battlefield. ASIC is specially designed for hash operations and has very strong computing power. Moreover, because their power consumption is much lower than that of graphics cards, they are easier to scale up and have lower electricity costs. It is difficult for a single independent graphics card to compete with these mining machines, but at the same time, such machines are more expensive.