Mining is the process of monitoring transactions and adding them to a blockchain.
There are different types of blockchains. The most well-known are Proof-of-Work (PoW) and Proof-of-Stake (PoS). In a PoW system such as Bitcoin, transactions are verified by a process called “mining”. The miners receive a reward for their verification in the form of Bitcoin, which is a block reward.
A miner (also known as a mining node) validates transactions from the memory pool. This memory pool includes all transactions that have not yet been verified. A miner collects multiple transactions and puts them together in a candidate block. This is a block that has yet to be added to the blockchain. In this candidate block, the miner also adds a transaction for himself. This is the reward for creating a block. A miner only receives this reward if the block is also added to the blockchain. Each transaction in a block is then hashed. This means that the transaction data cannot be seen literally. Eventually, all hashes are merged into a single hash. This hash must be below a pre-determined value. The miner that succeeds first has the answer and the block of this miner will be added.
A Proof-of-Work consensus mechanism is known as one of the most secure ways to maintain a blockchain. This is because there is no central party that can unilaterally add or reject transactions. In addition, miners are generally spread around the world. In the event that the power goes out on an entire continent, there are still enough miners left to keep the blockchain running. This decentralized aspect comes under more pressure as the puzzles become more difficult for miners. This is because the heavier hardware is expensive, making mining increasingly difficult for individuals. The fact that mining is becoming more difficult also means that a 51% attack will be more difficult. So this is a positive thing. On the other hand, mining is also becoming more centralized because it is becoming more difficult for small parties to get the hardware, which is a disadvantage.
Finding the right hash becomes increasingly difficult as a blockchain expands. This also means that increasingly heavy computers are needed to mine. Around 2010, when Bitcoin was still new, mining could be done on a smartphone because the solutions were easy. A decade later, there are companies that have entire buildings full of computers to mine. An important cost item for these companies is electricity. Because the computers are increasingly heavier, more power is also being used. For this reason, mining often takes place in places where electricity is cheap, such as in western China, where a lot of electricity is generated with hydropower. However, China has been applying strict regulations since 2022, causing many miners to cross the border into Kazakhstan. There are few places where there are clear regulations about mining. That is why miners are often ahead of these types of rules and are expelled afterwards.
