How blockchain security is ensured: the role of miners in the network

Key Aspects:

• Cryptocurrency mining is the mechanism through which participants in the network organize and verify transactions in a distributed ledger.
• The process ensures the creation of new units of the digital asset while simultaneously protecting the network from unauthorized changes.
• Miners group pending transactions into blocks ( and solve computational tasks for their confirmation.
• Profitability depends on the power of the equipment, energy resource costs, fluctuations in market prices, and changes in protocols.

The Essence of Cryptocurrency Mining

Imagine a global system where every financial transaction is recorded in an immutable ledger. Cryptocurrency mining ensures the integrity of this ledger and prevents anyone from falsifying records. Network participants use specialized computers to perform complex mathematical operations – essentially, searching for a specific numerical value that meets certain conditions.

The first person to find the correct solution receives a reward in a digital asset. Cryptocurrency mining is a fundamental process that ensures the reliability of systems like Bitcoin )BTC(. It allows for the verification of user transactions and their addition to the public ledger.

Mining is a critical element of decentralization: the network operates without a central controller, taking on distributed responsibility. At the same time, this process generates new coins according to pre-established rules encoded in the underlying protocol. Unlike fiat money printing, cryptocurrency issuance is completely transparent and subject to automatic mechanisms.

Miners direct computing resources to solve cryptographic equations. The first participant to find a solution gains the right to add a new block of transactions to the blockchain and propagate it across the network.

The Mechanics of the Extraction Process

) Short scheme:

1. Grouping of transactions – when users send or receive assets, pending transactions accumulate into a single group, ready for verification.

2. Solving a mathematical puzzle – miners use computing devices to search for a special number ### known as a number with no practical use (, which in combination with group data yields a result below the target threshold. This is similar to digital lottery.

3. Adding to the registry – the miner who first solves the puzzle gains the right to add their group to the chain. Other participants verify the correctness of this group.

4. Receiving Compensation – the winner receives a reward: newly created coins plus commissions from all transactions in the mined group.

) Detailed analysis:

When new transactions appear on the chain, they enter a special storage ###memory pool(. Network participants who perform validation functions confirm the legitimacy of each transaction. Miners take these pending transactions, group them together, and attempt to validate them.

A group is similar to a ledger page, where several transactions are recorded along with additional information. The mining node is responsible for collecting unverified transactions and forming a candidate group. Then, the miner attempts to convert this draft into an approved group by solving a complex problem that requires significant computational expenses.

For each successfully mined group, the participant receives compensation – a combination of newly created digital assets and commissions.

) Step 1: Hashing Transactions

The first step is to take pending transactions and sequentially pass them through a special function that generates a unique fixed-size code. Each transaction is transformed into this code – a kind of fingerprint that represents all the information of that transaction.

In addition, the miner adds a special operation in which they assign themselves a reward. This operation is recorded first in the new block, followed by all the pending operations.

Step 2: Building a hierarchical structure of hashes

After encoding all operations, their codes are organized into a hierarchical structure. The codes are placed in pairs and recoded. New codes are again paired and encoded until only a single code remains – the root of this structure. This root code represents all the previous codes.

Step 3: Search for a valid group code

Each group has a unique identifier - the group code. When creating a new group, the miner combines the code of the previous group with the root of their candidate group and adds a random number. All this is passed through an encoding function.

The goal is to obtain a group code that is lower than the threshold set by the protocol. Since the first two components cannot be changed, the miner repeatedly changes a random number until a result is achieved. On the Bitcoin network, the code must start with a specified number of zeros – this is known as mining difficulty.

Step 4: Distribution of the extracted group

When the miner finally finds the correct code, he spreads the group across the entire network. All the verifying nodes analyze the group, and if it is valid, they add it to their copy of the chain. Miners who did not make it in time discard their drafts and start the competition anew.

Scenario of simultaneous extraction of two groups

Sometimes two miners find a solution at the same time and propagate two competing chains. The network temporarily splits, and miners start working on the next block based on the one they first received. The competition continues until a new block is issued on top of one of the competing chains. The chain that receives the new block becomes the winner. The rejected chain is called an orphan block, and the miners who chose it must revert to working on the main chain.

Regulation of Mining Difficulty

The network regularly adjusts the difficulty of tasks so that the mining of new blocks occurs at a constant rate. This mechanism is proportional to the total computational power of the participants.

When new miners join the network and competition intensifies, the difficulty increases, which prevents the acceleration of the block creation rate. If miners leave the network, the difficulty decreases, making mining easier. These adjustments ensure the stability of the average time between blocks.

Diversity of Extraction Methods

CPU Mining

In the early stages of Bitcoin development, mining was accessible on regular computers. However, with the increase in popularity and network power, competition intensified, and CPUs proved to be insufficiently powerful. Specialized equipment displaced processors. Today, CPU mining is an archaic method.

( Mining on graphics processors )GPU###

Graphics processors are more versatile and cheaper than specialized equipment, although they are less efficient. GPUs can be used for mining some alternative digital assets, but performance depends on the algorithm and complexity.

( ASIC mining

Specialized integrated circuits are equipment designed specifically for mining. ASIC mining is the most efficient method, but also the most expensive. The equipment quickly becomes outdated, requiring constant upgrades. However, it provides the highest income when scaled industrially.

) Mining Associations

Since the reward goes only to the first miner, the likelihood of success for an individual is extremely low. Mining pools are coalitions of participants who combine their resources. When a pool finds a block, the reward is distributed proportionally to each member's contribution. However, the dominance of pools raises concerns about centralization and the risk of a monopoly attack.

Cloud Mining

Instead of purchasing equipment, participants rent computing power from a provider. This is a simpler entry point, but it comes with risks of fraud and lower profitability. It is important to choose reliable providers.

Bitcoin Mining as a Special Case

Bitcoin – the most popular mined asset. Its mechanics are based on the Proof of Work ###PoW### consensus algorithm proposed by Satoshi Nakamoto in the 2008 whitepaper.

PoW defines how a distributed network reaches consensus without intermediaries. Security is ensured by the fact that attacks are rendered economically unfeasible due to enormous costs of energy and computations.

In the PoW network, miners organize operations and compete to solve puzzles. The winner can expand their group; if the nodes approve it, the miner receives a reward.

The current reward for the group in Bitcoin is 3.125 BTC ( as of December 2024 ). Thanks to the halving mechanism, which occurs every 210,000 blocks ( approximately every 4 years ), the reward gradually decreases by half.

Is it worth engaging in mining?

Mining can be profitable, but it requires careful analysis and risk management. Equipment costs, price volatility, and changes in protocols are just some of the factors.

Key determinants of profitability:

Asset price – as the fiat value of cryptocurrency increases, the miner's reward also rises. When the price falls, profits decrease.

Equipment efficiency is measured by cost, so the miner must weigh the cost against potential revenue.

Cost of electricity – high energy resource costs can negate all profits.

Equipment Upgrade – mining equipment quickly becomes outdated; new models surpass the old ones. Without modernization, it is difficult to remain competitive.

Protocol Changes – the halving of Bitcoin reduces the block reward by half. In other cases, mining can be replaced altogether with alternative validation mechanisms.

Conclusion

Cryptocurrency mining remains a core element of PoW-based blockchains. It ensures network security and controls the issuance of new coins. The potential reward is alluring, but idealization is dangerous. Before starting, conduct your own research and assess all risks.

See also

• How does the blockchain work?
• What should I start mining with?
• What is digital asset staking?

Disclaimer: This content is provided for educational purposes. It should not be considered as financial or investment advice. Cryptocurrency markets are volatile; the value of investments can go down. You bear full responsibility for your decisions.