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Competing for Bitcoins

How do Miners Compete for Bitcoins – Proof of Work for Bitcoin Mining

Bitcoin Mining
                                              Bitcoin Mining

In my earlier post, I had covered What is Bitcoin mining?  There are now so many Miners all over the world, each one competing with each other, using software made specifically to mine blocks. Every time someone successfully creates a hash, they get a reward of 25 bitcoins, the blockchain is updated, and everyone on the network hears about it. That’s the reward to keep mining, and keep the transactions working.

The problem with bitcoin mining is that it’s very easy to produce a hash from a collection of data. Computers are really good at this. The bitcoin mining network has to make it more difficult, otherwise everyone would be hashing hundreds of transaction blocks each second, and all of the bitcoins would be mined in minutes. The bitcoin protocol deliberately makes it more difficult, by introducing something called ‘proof of work’. Bitcoin mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid.

proof of work is a piece of data which is difficult (costly, time-consuming) to produce but easy for others to verify and which satisfies certain requirements. Producing a proof of work for bitcoin mining can be a random process with low probability so that a lot of trial and error is required on average before a valid proof of work is generated. Bitcoin uses the Hashcash proof of work system.

 What is Bitcoin Hashcash Proof of Work System :

Hashcash proofs of work are used in Bitcoin for block generation. Proofs of work that are tied to the data of each block are required for the blocks to be accepted. The difficulty of this work is adjusted so as to limit the rate at which new blocks can be generated by the network to one every 10 minutes.

Due to the very low probability of successful generation, this makes it unpredictable which worker computer in the network will be able to generate the next block.

For a block to be valid it must hash to a value less than the current target; this means that each block indicates that work has been done generating it. Each block contains the hash of the preceding block, thus each block has a chain of blocks that together contain a large amount of work.

Changing a block (which can only be done by making a new block containing the same predecessor) requires regenerating all successors and redoing the work they contain. This protects the block chain from tampering.

The most widely used proof-of-work scheme is SHA-256, which was introduced by Bitcoin. Some other hashing algorithms that are used for proof-of-work include scrypt, Blake-256, CryptoNight, HEFTY1, Quark, SHA-3, scrypt-jane, scrypt-n and combinations.

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