Chapter 8 - 0 of 10 quizzes passed
Mining: The Global Lottery
Miners spend real energy to propose blocks and earn the subsidy plus fees.
- Explain proof of work, the difficulty target, and the 2016-block retarget
- Describe the block subsidy, halving schedule, fees, and the 51% limit
What miners do
A miner runs the same loop, around the clock, competing with every other miner to add the next block.
- Collect transactionsPick waiting transactions from the mempool, highest fee rate first, until the block is full.
- Build a candidate blockPut a coinbase transaction first, paying the miner the subsidy plus all the fees, then the chosen transactions. The header links to the previous block and summarises everything inside.
- Guess, very fastChange the nonce (and, when it runs out, an extra nonce in the coinbase or the timestamp) and hash the header, over and over, looking for a hash below the target.
- Find a winning hashRarely, one guess lands below the target. That is the proof of work.
- Announce the blockSend it to peers. Every node checks every rule before accepting it.
- Get paid, then start againIf nodes accept the block, the reward is the miner’s, spendable after 100 more blocks. Everyone, winner included, starts building on top of the new block.
If another miner finds a block first, the others drop their candidates and start over on top of the winner’s block. The work spent on the old candidate is simply lost.
Proof of work
Proof of work is a guessing game that is hard to win and easy to check.
- The miner changes a number in the block header (the nonce; once it runs out, an extra nonce in the coinbase or the timestamp) and hashes the header.
- It needs a hash below the current target. There is no shortcut: the only way is to try, hundreds of trillions of times a second on a single modern machine.
- Anyone can check a winning block with a single hash, so the work cannot be faked.
The target and the retarget
The target sets how hard the guessing game is. Bitcoin adjusts it so a block arrives about every ten minutes on average.
- A lower target means fewer winning hashes, so more attempts on average.
- Every 2,016 blocks (about two weeks) nodes compare how long those blocks took with the two weeks expected, and raise or lower the target.
- Between adjustments, blocks can come faster or slower than ten minutes.
The subsidy and the halving
Each block pays the miner new bitcoin (the subsidy) plus the fees of the transactions inside.
- The subsidy started at 50 BTC and halves every 210,000 blocks, about every four years.
- Since the 2024 halving it is 3.125 BTC per block.
- Nodes enforce the schedule, so total supply approaches but never exceeds 21 million.
- As the subsidy shrinks, fees become a larger share of what miners earn.
Why miners mine
Mining is a business: miners bid for the block reward in a competitive market.
- Revenue: block subsidy plus fees.
- Costs: machines, electricity, cooling and staff.
- When revenue per machine falls below its running cost, that machine is switched off.
- That is why mining follows cheap power, and why hash rate can move quickly between regions.
Pools, hash rate, and energy
Most miners join pools that combine hash power and share the rewards.
- Pools give miners a steadier income, but concentrate the choice of which transactions go into blocks.
- Mining uses real electricity, and goes where power is cheap or would otherwise be wasted.
- That can help balance grids or use stranded energy; it also creates e-waste and local costs.
- The honest question is not “does it use energy?” but “what security does that energy buy, compared with alternatives?”
The security budget
Miner revenue is what makes attacking Bitcoin expensive. As the subsidy halves, fees have to carry more of it.
- If fees stay low, attacking the chain gets cheaper relative to the value it secures.
- If fees rise, users pay more to settle.
- Nobody knows where this ends up. It is the central open economic question of Bitcoin’s later life, and should be treated as one.
Mining is not voting
Miners propose blocks; nodes decide whether those blocks are valid.
- A block that breaks the supply cap or carries a bad signature is rejected, however much work went into it.
- Miners can choose which valid transactions to include, and can attempt a 51% reorganization.
- They cannot rewrite the rules on their own. Confusing hash power with governance is a common mistake.
The 51% limit
An attacker with more than half the hash rate is dangerous, but not all-powerful.
- Can: mine a competing chain, double-spend their own coins, and temporarily censor transactions.
- Cannot: create coins from nothing, spend other people’s coins, or change the supply cap without nodes accepting new rules.
- An attack is expensive and visible: a real risk, not a master key to the ledger.
Try it
What you should take away
Proof of work makes block production costly and verifiable. The target retargets every 2016 blocks, the subsidy halves every 210,000 blocks, and fees increasingly pay for security. The 51% limit can double-spend and censor, but cannot change the supply cap alone.
Retrieve, then apply
What changes at a difficulty retarget, and what changes at a subsidy halving?
Check your explanation
Every 2016 blocks the difficulty target adjusts toward a ten-minute average. Every 210,000 blocks the subsidy halves. Neither rule sets the market price.
Checkpoint
Sources
Reviewed 2026-10-25 · not financial advice