Also called “digital gold”, Bitcoin is one of the most volatile and profitable cryptocurrencies. Since Bitcoin is a digital asset, you can transfer Bitcoins using the blockchain regardless of your geographic location. Bitcoin is widely used as an investment instrument and medium of exchange. It has even changed the gambling industry and led to the establishment of crypto casinos and betting websites (visit Bob Casino website for more information!). And this online casino (visit their website!) helps you better understand the benefits of Bitcoin’s use in gambling.Since cryptocurrencies are digital coins, there are no money-printing machines to produce them. The process of creating new virtual coins is far more complicated than printing physical money and is called cryptocurrency mining. One of the underlying math functions of mining is a cryptographic hash function. What purpose does this function serve and how does it work for the blockchain? How does Bitcoin mining use the blockchain? We will answer these questions and much more in this post. Let’s unveil the complex digital practice of mining and the major math puzzles behind it.
Blockchain Network And Cryptographic Hash Function
Mining is based on proof-of-work (PoW) blockchain. What does it exactly mean? Blockchain is a public digital ledger that records cryptocurrency transactions, accounts, and all their details in chronological order. Blockchain consists of specialized units and blocks with all the transaction details. Each block of information has four fields: previous hash, data, nonce, and hash. The “previous hash” field has information about the previous block that is linked to this block. The data field contains information about all the block’s mined and validated transactions.
The nonce field is a random value that generates the output of the hash function, the hash value. The function which generates the nonce and hash value is the SHA-256 algorithm. This algorithm is part of transaction verification in blockchain and signatures the block. Interestingly, it always generates a 256-bit hash value; it doesn’t matter what input value is given. This cryptographic function is the backbone of blockchain technology and all cryptocurrencies including Bitcoin. It protects the information saved in the blockchain as a security measure and verifies the information.
Cryptographic Hash Function and Bitcoin Mining
Our brief introduction to blockchain technology is much simpler than this structure is. However, this is how blockchain works. It is important to understand the basics of blockchain technology to understand the idea of Bitcoin mining. The very first goal of cryptocurrency mining is not generating new digital coins, it is about adding new blocks to the blockchains.
The new block verifies the latest transactions and produces new digital coins. Bitcoin mining machines try to find out the correct nonce value for the existing blocks in the blockchain with unverified transactions. If the generated nonce value is correct, the fastest miner can now add the newest block to a blockchain and get digital coins for this block. The correct nonce value means the miner can create a valid outcome of the cryptographic hash function with this nonce.
The winner is always only the first miner who first broadcasted the right nonce value to validate the block’s transactions on a blockchain network. The miner adds the nonce value to the block header. Solving a hash function and decoding the unique hash value requires high-performance computing. However, modern mining farms can solve the hash puzzle very quickly. On average, every 10 minutes a new block is added to the blockchain, and new digital coins are minted. Rewards motivate miners to take part in adding new blocks to the blockchain and maintain the circulation of Bitcoins. However, there is a supply limit for Bitcoins, 21 million, set by the inventor of Bitcoin.
Key Takeaways
Bitcoins are digital tokens that people can send through a digital payment network. This digital payment network is secure. The blockchain technology and cryptographic hash function are its major security mechanisms. Bitcoin miners compete to solve this function and verify the existing unverified transactions in the Blockchain block. Then they add the new block to the blockchain. The first miner who solved the hash puzzle gets the newly minted bitcoins and sometimes additional transaction fees.