**What is Bitcoin mining?**

**What is Bitcoin mining?**

One of the great cryptocurrency puzzles for many people is how it is ‘mined’ on a computer. At Lendo, we want every aspect of crypto to be as transparent as possible, and help people to understand the ‘Proof-Of-Work’ (PoW) concept that underpins the creation of cryptocurrency on the blockchain.

**Network transactions**

Alex sends Bitcoin to Bob, for example, and the blockchain is composed of a series of similar transactions. The transactions are gathered in blocks on a decentralised ledger. These transactions need to be confirmed and the blocks have to be arranged. And it is the job of the ‘miners’ to provide PoW of transaction confirmation and block formation.

**Puzzle solving**

The miners’ main working principles for PoW are a complicated mathematical puzzle and the possibility of easily proving the solution. This is the point where those of us who aren’t inside this technology universe think: “Miners solve puzzles and that’s a job?” Calling it a mathematical puzzle is the simplest way to describe it. Solving the puzzles uses up a phenomenal amount of computer power, which is why one Russian business man has bought a couple of power stations in order to provide the juice that crypto miners need. When the miners solve the puzzle, they get rewarded with a substantial amount of Bitcoin, or other mined cryptocurrencies. It is also important to note that not all crypto coins are mined.

These are the elements of PoW:

· Hash function — or how to find the input knowing the output.

· Integer factorisation — in other words, how to present a number as a multiplication of two other numbers.

· Guided tour puzzle protocol — if the server suspects a DoS attack, it requires a calculation of hash functions, for some nodes in a defined order. In this case, it’s a ‘how to find a chain of hash function values’ problem.

The answer to the PoW problem, or mathematical equation is called *hash*.

So miners solve the puzzle, form a new block and confirm the transactions. The complexity of the puzzle depends on the number of users, the power required and the network load. Plus every new block contains the hash of the previous block, which increases security and stops a block from being violated. This is why transactions on the blockchain are considered so secure.

Miners access the puzzle, solve it and form a new block. The network server checks the solutions sent by the miner and when a correct one is identified, the miner is sent a reward.

**Why is PoW so important?**

Primarily because it defends the blockchain from DoS attacks. However, for miners it comes at a significant cost. Mining requires highly specialised computer hardware to run the complex algorithms. This hardware eats up huge amounts of electricity and that is a cost factor that means mining isn’t for everyone. Indeed, these days it is only specially set up mining pools that can afford to be involved.

Mining is a business sector that is quite unique and because of its highly technical aspects, it is a challenge to understand the process. However, we hope we have made it a bit clearer. Having said that, most crypto asset owners are happy to buy and spend cryptocurrency without worrying about how it all works; in the same way people can enjoy driving a car without knowing all about the internal combustion engine.