Chapter 10. Mining and Consensus
The word “mining” is somewhat misleading. By evoking the extraction of precious metals, it focuses our attention on the reward for mining, the new bitcoin created in each block. Although mining is incentivized by this reward, the primary purpose of mining is not the reward or the generation of new coins. If you view mining only as the process by which coins are created, you are mistaking the means (incentives) as the goal of the process. Mining is the mechanism that underpins the decentralized clearinghouse, by which transactions are validated and cleared. Mining is the invention that makes bitcoin special, a decentralized security mechanism that is the basis for P2P digital cash.
Mining secures the bitcoin system and enables the emergence of network-wide consensus without a central authority. The reward of newly minted coins and transaction fees is an incentive scheme that aligns the actions of miners with the security of the network, while simultaneously implementing the monetary supply.
The purpose of mining is not the creation of new bitcoin. That’s the incentive system. Mining is the mechanism by which bitcoin’s security is decentralized.
Miners validate new transactions and record them on the global ledger. A new block, containing transactions that occurred since the last block, is “mined” every 10 minutes on average, thereby adding those transactions to the blockchain. Transactions that become part of a block and added ...