A miner builds a block template: it selects unconfirmed transactions from its mempool, typically prioritising the highest fee rate per vbyte to maximise revenue, up to the block weight limit. It then adds one special transaction of its own, the coinbase transaction, which creates new bitcoin out of nothing and pays it, along with the sum of all fees in the block, to an address the miner chooses.
The miner then repeatedly changes a field in the block header (the nonce, and if needed other fields) and hashes the header, checking each time whether the result is below the current target. This is proof of work: there is no way to predict a winning value, only to search by brute force, so finding one is statistical proof that a real amount of computation was spent.
Individual miners rarely find blocks alone at today's difficulty, so most join mining pools that combine hashing power, split any found reward roughly in proportion to work contributed, and reduce the variance any single participant experiences. The pool operator, not each individual miner, typically builds the block template.
Explain more simply
Miners collect unconfirmed transactions, bundle them into a candidate block, and race to find a special number that makes the block 'valid' according to a very hard puzzle.
Whoever finds it first gets to add their block to the chain and is rewarded with newly created bitcoin plus the fees from the transactions they included.
Real-world analogy
Mining is like a lottery where buying more tickets (hashing power) improves your odds but never guarantees a win, and every ticket must still pass an independent judge (the nodes) to count.
Key facts
- Miners assemble candidate blocks and search for a nonce producing a hash below the target.
- The coinbase transaction pays the miner the block subsidy plus all fees from included transactions.
- Mining pools combine hashing power and share rewards to reduce individual variance.
Common misconception
“Miners can put any transaction they want into a block, including invalid ones.”
Miners choose which valid transactions to include and in which order, but every node independently rejects a block containing an invalid transaction, so including one wastes the miner's work for nothing.[1]
Go deeper
Mining revenue has two components with different long-term trajectories: the block subsidy, which halves roughly every four years and trends toward zero, and transaction fees, which are expected to become the dominant incentive as the subsidy shrinks. This transition is a genuine long-run design question that is still playing out in practice.
Because the coinbase transaction's recipient address is chosen by whoever assembles the block, protocols such as Stratum V2 aim to let individual pool participants choose their own transaction sets rather than trusting the pool operator, reducing the pool's ability to censor transactions.
Quick check
Answer every question correctly (100%) to complete this lesson.
1.What does the coinbase transaction do?
2.Why do most miners join pools?
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Extra exam questions
Every question here counts towards your accuracy, XP and rank. No guessing: every answer is explained.
Quick check
Answer every question correctly (100%) to complete this lesson.
1.What is the main task miners perform in Bitcoin?
2.What two forms of income can a miner earn from a block?
3.Can miners include any transaction they want, even invalid ones?
4.What is proof-of-work, in simple terms?
5.Why do miners repeatedly change the nonce field when mining?
6.What happens to a miner's proposed block if a competing miner finds a valid block first?
7.What is a mining pool?
8.Do miners set Bitcoin's consensus rules by themselves?
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Sources
- Bitcoin: A Peer-to-Peer Electronic Cash System (2008), Satoshi Nakamoto
The original nine-page proposal. Describes proof of work, timestamping and the incentive model.
- Bitcoin Core documentation, Bitcoin Core project
Reference implementation documentation, including validation and release notes.
- mempool.space REST API, mempool.space (open source)
Live block, mempool, fee, mining and Lightning figures shown on this site come from this API.