Mining creates new blocks and then adds them to the blockchain. New blocks issue new Bitcoins and at the same time confirm some of the new or still open transactions.

Until November 2012, 50 Bitcoins were paid out with each new block, until July 2016 25, until May 2020 12.5 and since then 6.25.

In this way, decentralized money creation takes place. The process is very computationally intensive, and in return, the participant who creates a valid block receives the created Bitcoins and the fees from the included transactions as a reward.

After a new valid block is found, like unconfirmed transactions, it is disseminated via flooding algorithm to all Bitcoin nodes in the network as a new longer valid blockchain.

Mining in the Bitcoin system in this way also solves the problem of the Byzantine generals: since there is no central authority that authenticates the participants, the Bitcoin nodes do not trust each other on principle. The problem for each Bitcoin node is to find out which blocks or which blockchain is the "correct" one, i.e. the one trusted by the majority. Valid blocks are only created through computationally intensive mining. Thus, every Bitcoin node trusts the longest valid blockchain, since it has the most computing power and is therefore assumed to have the majority of participants.

Practically the entire computing power of the Bitcoin network is spent on solving cryptographic tasks, the proof of work, during mining. Their purpose is to ensure that the generation of valid blocks is associated with a certain amount of effort, so that a subsequent modification of the blockchain, such as in the scenario of a 51% attack, can be practically ruled out. Due to the difficulty, miners join together to form "mining pools" in order to receive payouts despite these high demands on power consumption, provision of costly hardware, and/or hardware under their own control. The largest percentage of mining pools are located in China, which is also home to most of the cryptocurrency's miners - or about 75% of its computing power.

Proof of work for Bitcoin consists of finding a hash value that is below a certain threshold. The threshold value is inversely proportional to the mining difficulty. The threshold value can be used to regulate the effort required to solve the proof of work, because the lower this value is, the less likely it is to find a matching hash. The hash is calculated by applying the SHA-256 cryptological hash function twice to the initial area of a block (block header).

The procedure works as follows:
Initialize block, calculate root hash of block from transactions.
Calculate hash value: h = SHA256(SHA256(block header))
If h >= threshold, modify block header and return to step 2.
Else (h < threshold): Valid block found, stop calculation and publish block.

To ensure that a hash value can be found below the specified threshold, there are several fields in the block header whose value can be changed. The Nonce field exists specifically for this purpose.

 

The difficulty of the task is dynamically controlled in the network in such a way that a new block is generated every ten minutes on average. Therefore, as the computing power of the network increases, solving the task also becomes more and more difficult. The probability of a participant finding the correct solution is proportional to the computing power used. Every 2016 blocks, all Bitcoin nodes independently recalculate the difficulty of the mining, adjusting it to the current computing power of the entire system, so that a new solution continues to be found approximately every ten minutes. 2016 blocks correspond to about 2 weeks at constant hash performance. Solutions that do not match the current difficulty level are not accepted by other Bitcoin nodes.

 

A mining pool is the pooling of the processing power of mining hardware in a network to distribute block rewards evenly. The hashrate corresponds to the probability of finding a block and thus contributing to the pool. A "share" of the block reward is awarded to mining pool members who present a valid partial proof-of-work. Mining in pools was introduced when the difficulty of mining became so great that it could take centuries for slower miners to generate a block. The solution to this problem was to pool resources to generate blocks faster and receive a small portion of the block reward on a constant basis rather than randomly once every few years. One trend is toward centralized cloud mining as a risky capital investment. The providers of this cloud mining operate their data centers in Iceland, for example, because the electricity there is very cheap and the possibilities for efficient cooling of the thousands of ASIC mining computers are very good. This could threaten the decentralized Bitcoin mining model and make a 51% attack more likely.

 

A protocol change is introduced as a so-called fork. A distinction is made between two types: protocol changes that introduce further rules are referred to as a soft fork, a relaxation of the rules as a hard fork. The difference is noticeable when operating the Node software: An older version of this software is compatible with softfork blocks, but cannot check the new rules. Hardfork blocks, on the other hand, require a software update, but after that the new rule set can be fully checked. Since the first block, Bitcoin has had 16 softforks and 3 hardforks.

Forks (or chain splits) are also events where a blockchain splits and both inventory ledgers continue independently. This usually occurs when a protocol change is not universally supported, but continues nonetheless. By splitting the blockchain into two separate histories, a Bitcoin can also be used in both payment systems after a chain split. Thus, each owner of a Bitcoin received one Bitcoin Cash at the time of the Bitcoin Cash fork. When making a transaction after a chain split, however, it is necessary to check whether there is protection against replay attacks.

Known chain splits of Bitcoin are:
Bitcoin Cash: split at block 478558.
Bitcoin Gold: split at block 491407
Bitcoin SV: Split at block 556766 of Bitcoin Cash.
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