The essence and operational mechanism of Mining.

The birth of Crypto Assets differs from the traditional financial system primarily in its decentralized issuance. In a system controlled by banks and governments, fiat currency is printed and circulated by a central authority. Most Crypto Assets, however, adopt a completely different model—new coins are generated through a mechanism called Mining, and the entire process strictly adheres to pre-set protocol rules, independent of any single authority.

The Core Role of Mining

Mining is not just the process of generating new coins, but also a key mechanism for maintaining the security and integrity of the entire blockchain network. In the Bitcoin network, participants involved in mining are referred to as nodes or miners, and they carry out the mission of ensuring the trustworthy operation of the network.

These miners gather unconfirmed transactions and organize them into a block candidate for verification. When creating a candidate block, miners will include a special transaction—sending the block reward to themselves, which is called a coinbase and is usually the first transaction recorded on the blockchain.

Mining Technical Workflow

After completing the transaction list, each transaction undergoes a hash operation. These hash outputs are paired and hashed again, with new outputs continuing to be paired and hashed. This iterative process continues until a single hash value is produced - namely, Merkle Root (Merkle Root or Root Hash).

Then, the Merkel root is combined with the hash value of the previous verified block, along with a random number nonce and other parameters. These elements are hashed again to finally generate the block hash of the candidate block.

But there is a key requirement here: miners can only succeed when the generated hash value is below a predetermined target value. Because of this, the entire process is based on trial and error—miners must use different nonce values to perform multiple hash calculations. The first miner to find a qualifying hash will validate their candidate block and thus receive the block reward. The entire process takes an average of ten minutes.

Proof of Work and Reward Mechanism

The valid hash generated by miners actually represents the computational work they have put in, which is why Bitcoin's consensus algorithm is called Proof of Work. Each validated block has a unique hash value that serves as its identifier.

The block reward is determined by the Bitcoin protocol and follows a halving mechanism—every 210,000 blocks generated (approximately every four years), the reward is halved. This mechanism has gradually reduced the initial reward of 50 BTC to the current 6.25 BTC. This design ensures the predictability and scarcity of Bitcoin supply.