Bitcoin mining is a computer that has the protocol downloaded on it. The computer (miner) will usually run 24/7, and it picks up transactions made by Bitcoin users. It takes all the transactions and puts them into a block.
When it’s time, the miner will send the block to nodes (different computers, with a different job to miners), the node will then verify all the transactions.
And then the miner will try and work out the mathematical puzzle that Bitcoin asks. The first miner to work out the puzzle will win the block reward, which is 12.5 BTC.
There is much more to mining, and I will go into it deeper for anyone interested.
What is Proof of Work
The Bitcoin algorithm is based on a proof of work consensus. This means that all bitcoins are worked into existence. Nodes and miners take care of the proof of work and continuously work to verify and add all transactions to Bitcoin’s ledger.
The miners are continuously processing data to try and discover the correct answer to the cryptographic puzzle, and it’s basically trial and error before any miner gets the correct answer, and that is known as discovering the block.
Each discovered block must have the proof of work hashed into it for it to be accepted by the nodes and added to the blockchain.
The Block Reward
When a miner discovers the block that specific computer will be awarded the block reward. For now the block reward is 12.5 BTC every block, which is roughly every 10 minutes. However, the block reward is cut in half every 210,000 blocks, which is about 4 years.
The next block reward is due to take place in about 2 weeks, when it halves to 6.25. Roughly, every four years after that there will a 50% cut in the block reward. This will go on until about 2140, when the last fraction of BTC will be mined.
Miners are also paid a percentage of the transaction fees paid for by the sender. The fee is an incentive for the miner to include the transaction in the block. In the future, as the block reward dwindles, the transaction fees will end up being the majority of the miners’ income, but for now the block reward is the largest part of it.
What is Staking?
Staking generally refers to the holding of your cryptocurrency funds in a wallet and hence supporting the functionality of a blockchain system. The cryptos are being locked in their wallets by the stakeholders. They are then rewarded by the network in return. Staking provides a way of making an income.
Staking is a process similar to having a savings account with your bank and earning interest on the deposits. Staking is a great addition to the cryptocurrency space which offers notable applications. Staking also brings the aspects of familiarity, engagement, and reward into the ecosystem. This makes the investment all the more worthwhile.
What is Proof of Stake (PoS)?
Proof of stake is a protocol that allows the participants to stake the coins. It then randomly grants one of them the right to validate the next block at unique intervals. The chances of getting chosen are dependent on the number of coins. There are higher chances if you have a higher amount of the coins locked up.