The Mining has two meanings.

・Currency supply mecanism
・Decentralized emergent consensus

①Currency supply mechanism
At a point of jan 2009, Remuneration of mining for 1 block was 50BTC. In other word, mining means that supply new bitcoin to network.Mining reward is designed to reduce by half in 210,000 blocks (about 4 years).In 2140, it will reaches upper limit of 20,999,999,98bitcoin (13.44M block). If the reward is less than 1 satoshi, the reward for mining is lost.


The total number of Mining reward
Code to calculate how much the upper limit issue quantity.

#primary miners reward
start_block_reward = 50
#reward is halved every 210,000 blocks
reward_interval = 210000

#upper limite number
def max_money():
    current_reward = start_block_reward * 10 ** 8
    total = 0
    while current_reward > 0:
        total += reward_interval * current_reward
        current_reward /= 2
    return total

print("Total BTC to ever be created:", max_money(), "Satoshis")

②Decentralized emergent consensus
Participating node in the Bitcoin network reach a global consensus based on public ledger (blocking chain) without Centralized trust model. This is Bitcoin revolutionary invention that is dispersive mechanism to decentralized emergent consensus.The consent obtained by asynchronous interaction is established by node who following below rules.

・Verification of independent transaction
・Accumulation of independent transaction
・Verification of independent new block and blockchain transmission
・Select of independent blockchain

1.Verification of independent transaction
It is verified whether valid transaction.

・Is the transaction grammar and structure correct?
・Input and output is not empty?
・transaction data size does not over define upper limit of block size?
・Output value and Total value in the range of 0-21,000,000BTC?
・Input is not coinbase tranzaction(hash=0, N=-1)?
・”nLockTime” is lower than 31bit?
・transaction data size ≧100?
・Do not over upper limit of signature operation times?
・scriptSig can push the number to stack?
・scriptpub in isStandard format?
・Same transaction exist in the transaction pool or main branch blockchain block?
・Input is not referring to the output referred to from other transactions in the transaction pool?
・In the case of input refer to output that is coinbase transaction, number of conformation is not over than 100?
・Output referred to by input does not already used?
・Sum of each input is in the range of 0-21,000,000bitcoin?
・Sum of inputs smaller than the sum of output?
・ScripSig can unlock to corresponded scriptPub?

2.Accumulation of independent transaction
Mining nodes do not only add to memory pool and transaction pool after transaction verification, this transaction is collected to candidate block.

Priority of transaction processing
Elements related to priority of transaction
・Transaction age
・Transaction fee
・Input value of transaction size
※transaction age;The number of blocks that have elapsed since the UTXO was recorded on the blockchain

Calculation of priority is as follow

Priority = Sum (Value of input * input age ) / Transaction size

High Priority is necessary larger than 57,600,000 of priority

High Priority > 100,000,000 satoshis * 144 block / 250 byts = 57,600,000


Priority(Even if no fee) > Transaction fee/Transaction data size  > No fee

Validity period of transactions
Valid transactions have no deadline. But, If the transaction sent to the network is not transmitted to the whole, it needs to be sent again. Because, Memory pool of mining node is temporary storage.

Generation transaction
It is said that “coinbase transaction”. It is the reward you get when the mining is successful.For get remuneration,the miner generate "generation transaction" as payment of own wallet. This transaction is special and does not have UTXO in the input.Instead, the transaction has an input called coinbase.The output is a script that sends remuneration (mining remuneration and fee) to miner's address.

Transaction hash does not have refering previous hash, Instead it fill with 0 of 32 bytes.All Output index is set to 0xFF (255), and scriptSig is a free field (coindase data) which minor can use arbitrarily.

Coinbase data
As defined in BIP0034 when version is "2", block hight must include in Coinbsae data.

For example,when scriptSig is...


push 3byte to stack
It means block hight 277,316 (little endian )
extra nonce
defined in BIP0016 support P2SH

Proof of work algorithm
Change the value of nonce, hash the block header with SHA256 and continue to calculate until it falls below the target value.

Characteristic of hash value with SHA256
・If input changes even for one character, the value output is completely different.
・If input is same, the same output will be returned no matter how many times calculated (anyone can check it).
・Input value can not calculate from output value.

The way to find a value smaller than the target only is only by brute force.So this work is called trust work.Verification of work is very easy. Just compare the hash value of the block header containing the answer of nonce.

Simple code to explain proof-of-work algorithm

import binascii
import hashlib
import time

max_nonce = 2 ** 32 

def proof_of_work(header, difficulty_bits):
    #When "difficulty_bits" value increase,"target" value decrease and up to difficulty
    target = 2 ** (256-difficulty_bits) 
    #nonce is 0 to 4294967296
    for nonce in range(max_nonce):
        #header + nonce = 'test block with transactions0, 1, 2...'
        hash_result = hashlib.sha256(header.encode('utf-8') + str(nonce).encode('utf-8')).hexdigest()
        # check if this is a valid result, below the target
        if int(hash_result, 16) < target:
            print ("Success with nonce %d" % nonce)
            print ("Hash is %s" % hash_result)
            return (hash_result,nonce)
    print ("Failed after %d (max_nonce) tries" % nonce)
    return nonce

if __name__ == '__main__':
    nonce = 0
    hash_result = ''
    # difficulty from 0 to 31 bits
    # Increase "difficult_bits" one by one   
    # change "nonce"value until you enter traget range.
    for difficulty_bits in range(32):
        difficulty = 2 ** difficulty_bits
        print ("Difficulty: %ld (%d bits)" % (difficulty, difficulty_bits))
        print ("Starting search...")
        # checkpoint the current time
        start_time = time.time()
        # make a new block which includes the hash from the previous block
        # we fake a block of transactions - just a string
        new_block = 'test block with transactions' + hash_result 
        # find a valid nonce for the new block
        (hash_result, nonce) = proof_of_work(new_block, difficulty_bits) 
        # checkpoint how long it took to find a result
        end_time = time.time()
        #Time to proof of work
        elapsed_time = end_time - start_time
        print ("Elapsed Time: %.4f seconds" % elapsed_time)
        if elapsed_time > 0:
            # estimate the hashes per second
            hash_power = float(int(nonce)/elapsed_time)
            print ("Hashing Power: %ld hashes per second" % hash_power)

Calcurate of target
whether nonce is right answer, blockhash will attain an objective depend on whether.Specifically, when block hash containing the value of certain nonce falls below the target value.The equation is as follows.

target value =(low of bit 3byte)* 2 ^ (8*( upper of bit 1byte - 3))

Let's calculate the target with block number 285566 as an example!

①Bits of block number “285566” is 419537774
②hexadecimal of 419537774 is ”1901a36e”
③lower 3 byte of bit is 0x01a36e
④Upper 1 byte of bit is 0x19(in the case of decimal 25)
⑤Substitute ① to ④ for above formula
⑥Check to calculated value is lower than the hash of block285566
※The hash of block number 285566 is "000000000000000149c7840096f76475d018ed0c05f1a688e608b8254a39d796"

#target calculate function
def target(bits):
    hexadecimal_bits = '%x' % int(bits)
    upperbits = hexadecimal_bits[:2]
    lowerbits = hexadecimal_bits[2:]
    upperbits = int(upperbits, 16)
    lowerbits = int(lowerbits, 16)
    target_value = lowerbits * 2 ** (8 * (upperbits - 3))
    number =64 - len('%x' % int(target_value))
    target = (number * "0") + '%x' % int(target_value)

#Bits of block number “285566” is...
bits = "419537774"
target_value = target(bits)

#Hash of block number "285566" is...
hash = "000000000000000149c7840096f76475d018ed0c05f1a688e608b8254a39d796"

#It can see that the hash is smaller than target_value
target_value > hash

Calculate of difficulty
Difficulty is indicator of the difficulty of finding the target block hash.

difficulty=upper limit value of target / current target

Let's calculate about difficulty of block number43420(Ask for difficulty 3.78)!
①Calculate current target
※bits of block number43420 is 474199013(hexadecimal 1c43b3e5)
②Next, calculate upper limit value of target
※The upper limit value of the target is defined as constant 0x1d00ffff
③Finally,by difficulty=upper limit value of target / current target

#target calculate function
def target(bits):
    hexadecimal_bits = '%x' % int(bits)
    upperbits = hexadecimal_bits[:2]
    lowerbits = hexadecimal_bits[2:]
    upperbits = int(upperbits, 16)
    lowerbits = int(lowerbits, 16)
    target = lowerbits * 2 ** (8 * (upperbits - 3))

#calculate about target of block number43420
bits = "474199013"
current_target = target(bits)

#The upper limit value of the bits is defined as constant 0x1d00ffff
upper_bits = int("1d00ffff", 16)
upper_target = target(upper_bits)

#Formula to calculate difficulty
difficulty= upper_target / current_target


3.Verification of independent new block and blockchain transmission
The node Independently verification whether effective block ,before new generated block sent to other node.
Whether valid chack it with below lists.

・Is the block's data structure and syntax valid?
・Block header hash value is smaller than target?
・Time Stamp of block is earlier than 2 hours later of the node's time?
・Block size is with in range?
・First transaction is "coinbase generation transaction"?
・The transaction included in the block satisfy the transaction rule?
※Invalid blocks are repelled by other nodes based on this rule.

4.Select of independent blockchain
The node rebuilds the new block by connecting it to the existing block chain.The node has three kinds of block set.

main blockchain
This is the chain with the most ”difficulty” accumulation. In other words, it can be said to be a chain with the most blocks.
Sometimes it has a branch of sibling block. when the branch exceeds "difficulty" of main blockchain in the future,This keeps it to be replaced by the main.

secondary blockchain
It is said that Fork.The fork occur when different nodes mined same block.Some times,there are times when new block extended except with main chain.

If a parent is not found in an existing chain even if it receives a valid block from another node, it becomes an orphan block and is retained in the orphan block pool.
The oprhan block occurs when the order of blocks mined almost simultaneously is received in reverse.

extra noce
Extra nonce is included in the coinbase transaction which is a transaction paying a minor reward.
In the early days difficulty target was low, so it was possible to find a hash value lower than target with 400 million nonces.Updated the Time Stamp and discovered a hash value lower than the target by obtaining a hash value.But, as difficulty got better, 400 million nonces were used up within 1 second, and more space was needed to find effective,using 2 - 100 byte data space of coinbase transaction it became possible to calculate in a larger range.