Bitcoin Mining Overview: Incentives for Honesty

Overview of proof of work, what it is, what it aims to achieve, why it is essential to maintain the decentralisation element of Bitcoin

Proof of work is a system created by Satoshi Nakamoto to ensure an immutable ledger which is completely decentralised, allowing the ledger to indicate the quantity of coins owned by each user as well as amend the ledger as amounts are sent between users of the digital ledger. It works by incentivising miners to expend computing energy in a lottery based system which picks a winner with a higher likelihood of winning based on the amount of computing power expended as they have "purchased more tickets". This occurs approximately every 10 minutes where the block subsidy as well as the transaction fees paid for within the “block” or 10 minute window of transactions occur. In order to reverse the blockchain, a malicious party would need to re-mine the block, as well as catch up and overtake the current forward moving state of the blockchain which would require mass collaboration and a sustained amount of computing power greater than that of the honest nodes

Achieving consensus, expending energy, energy required to remind blocks the same as the proof of work completed

In order to achieve consensus across the distributed ledger system known as Bitcoin where some node operators and miners may act maliciously, an incentive structure is implemented rewarding honest miners and nodes and penalising dishonest ones. This financial incentive creates honesty within the network through game theory, as to act maliciously would be an expensive endeavour, and would require a sustained attack on the network which would cost more than the potential gain from exploiting the network. This eliminates any attackers which may attack the network for financial incentive, narrowing it down to government and other large opposing corporate interests which are still very unlikely to penetrate the network due to the possibility of forks and other censorship resistant mechanisms. Miners are incentivised to expend computing energy to find a hash of the series of transactions contained within the block with a certain amount of zeros preceding the rest of the hash function. The probability of hashing the block and finding a hash of the block with the required amount of zeros (Shifts based on difficulty adjustment) is very low and miners will automatically hash the block over and over again in attempt to find this proof of work solution. Once a miner has found the proof of work, then the block is officially “mined” and the transactions are finalised into the blockchain. The miner is then paid out all of the feed within this block as well as the block reward. The block reward is a subsidy to incentivise hashing power on the bitcoin blockchain as the amount of transaction fees in the early days of bitcoin may have not been enough to incentivise enough mining to keep the network secure. The current bitcoin mining reward as of August ’25 is 3.125 Bitcoin, and this continually halves every 4 years. In 2140 the bitcoin blockchain will no longer be subsidising the miner fees and miners will be totally sustained by fees.

Current hash rate, 10 minute average block time, adjusting hashing rates

Bitcoin block times are designed to be 10 minutes on average. In order to maintain this 10 minute block time, the difficulty is adjusted based on the amount of mining power within the network. As the mining power increases, without a difficulty adjustment, the block times would start shifting, so the difficulty is constantly updated based on the amount of computing power within the network in order to keep the consistent 10 minute block time (on average). The current hash rate is approximately 600 Exahashes per second, meaning on average a miner would have approximately 1 in 6 million chance of finding the next block. For this reason it is impractical to mine alone or what is known as solo mining. It is much more practical to join a mining pool where they win bitcoin block rewards on a regular basis and miners are paid not based on probability within the pool but based on computing power. For example if a miner within a pool has a small machine running 24 hours a day, the amount they are paid by the mining pool is proportional to the amount of computing power contributed to the pool. This allows small miners to run profitably on the bitcoin network, increasing the hashing power and thus the security and decentralisation of the network