The bitcoin system will cease to operate if not for the most important task which is the mining. Mining is the process of putting additional transaction records into the public ledger of the bitcoin network. The ledger is consists of many blocks that represents the transactions and all of these blocks are connected in a chain. The chain of blocks is what made up one of the most widely popular technological innovation of this generation – Blockchain.
In order for a block to be marked as valid, it must have proof that work has been done on the block. The bitcoin employs the hashcash function as a proof on each of the processed block. The main goal of the process is to gain an incentive from the current resource as well as make it difficult to process. The protocol also gives reward to miners who have processed and complete a block as a form of reward. In the beginning, the reward is one way of sending out coins to public and enters it into a circulation. This is needed to be done since there is no central body that is authorized to circulate the digital currency.
Aside from the block reward, there is also additional transaction fee that is paid if the user chooses to. As the numbers of users that are doing business with bitcoins increases, the blocks eventually become full and when that time comes, the transaction that has the highest fees will be the first on the list. This is done in order to give excellent service to users that are paying higher compared to others. With this continued process, the cycle of mining continues to be funded. The only problem is that as of the moment, the average of transaction fees are less than half of a bitcoin for each block.
Miners knows how bitcoin mining works and they understand that while the reward is able to cover the fees, there will come a time that the bitcoins sent out as incentive will decrease in supply – for every 210,00 blocks, halving occurs.