Let's continue our adventure in the world of Bitcoin, in a simplified way and talk a bit about mining.
The Bitcoin network rewards those who validate the blocks; blocks that contain a set of transactions made by bitcoin users. Currently, this award is 12.5BTC. This reward is divided by two periodically (every 210000 blocks)
You can see the countdown for the next halving here:
http://www.bitcoinblockhalf.com/
The Bitcoin database consists of a chain of blocks, and each block is connected to its predecessor. It is possible to designate a block by its number (height) but internally, a block is designated by its signature (hash).
Transactions (movement between bitcoin addresses, etc.) use a specific scripting language. This script is also hashed to be included in the blocks but the type of hashing is different because it is reversible and it is possible to decode a hash script.
When a person wants to validate blocks, a miner, he will use a special program. This program will ask the network to do some work.
The network will return , as information, to simplify:
previous hash (of the blockchain)
timestamp (date & hour )
transactions (hash of the script + one with our address for possible reward)
target (difficulty of the network)
For simplicity, we will use alphanumeric represensation and a simple sha256 hash. Bitcoin works in binary and double hashes (double sha256)
With this information, the miner will be able to work to validate a block. He is not alone! Thousands of miners perform this task as well: it is a competitive race of speed, to whoever will find the block before the others. Other miners do not necessarily get the same work to do: the date can vary, the transactions too.
To this information, we add a variable, called "nonce". It is this variable that we will evolve. It constitutes the proof of work (pow).
We will play again with our hash online: http://www.xorbin.com/tools/sha256-hash-calculator
Let say the target is: 0fffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff
Nonce
Data to hash
Hash:
0
previoushash+timestamp+transactions+0
2e679add824ae172ad386bf99e8ecd61280ab42ab0edb48c4d1775cc8454195d
1
previoushash+timestamp+transactions+1
369aa72165ea5020bbff5cd3a3961abc3396ac738e6a59341322ec715e647020
2
previoushash+timestamp+transactions+2
d5cc992eff71c3a1f7ea05648acd0393a4b34121104a66a2cf42c977c8082496
3
previoushash+timestamp+transactions+3
8b8e0998a3e462c6760058052cabbd713ae9f8012dcdbe54d4d7da01bd36eed7
4
previoushash+timestamp+transactions+4
44e6524d9d36c06d20c8cb982e574c8ce1b6751861e090e4abe53295dd246611
5
previoushash+timestamp+transactions+5
08017f74987b08b331f2681c948d804f39ca94ea3b6ad737ab86d8b0ed5cf884
Nice! With nonce=5, we got a result under the target!
08017f74987b08b331f2681c948d804f39ca94ea3b6ad737ab86d8b0ed5cf884 < 0fffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff
So, we can submit our work to the network. All nodes of the network will check the validity of this work, and if valid, will accept it and create a new block into the chain (with the transactions included into the work)
We will receive the reward and after 100 confirmations (maturation of 100 blocks), we will able to spend it.
We can request a new work from the network and work on the next block.
The network will adjust the difficulty (the target) every 2016 blocks to respect an average time between blocks of 600 seconds (10 minutes). The lower the value of the target, the harder it is to find a lower hash than the target. (and vice versa).
