Bitcoin mining uses a hash based Proof of Work function. The algorithm requires the following parameters: a service string, a nonce, and a counter. In Bitcoin the service string is encoded in the block header data structure, and includes a version field, the hash of the previous block, the root hash of the Merkle tree of all transactions in the block, the current time, and the target of the proof of work function.
- The Nonce field which is included in the block header
- The extraNonce field which is part of the Coinbase transaction
Each field includes a counter parameter that is relatively small (32-bits). The hash function cycles through all values of the Nonce field then increments (or otherwise changes) the extraNonce field before going through all permutations of the Nonce again. Incrementing the extraNonce field entails recomputing the merkle tree root as it modifies the hash of the Coinbase transaction.
A block header contains these fields:
|Field||Purpose||Updated when…||Size (Bytes)|
|Version||Block version number||You upgrade the software and it specifies a new version||4|
|hashPrevBlock||256-bit hash of the previous block header||A new block comes in||32|
|hashMerkleRoot||256-bit hash based on all of the transactions in the block||A transaction is accepted||32|
|Time||Current block timestamp as seconds since 1970-01-01T00:00 UTC||Every few seconds||4|
|Bits||Current target in compact format||The difficulty is adjusted||4|
|Nonce||32-bit number (starts at 0)||A hash is tried (increments)||4|
The body of the block contains the transactions. These are hashed only indirectly through the Merkle root. Because transactions aren’t hashed directly, the proof of work needed to mine a block with 1 transaction takes exactly the same amount of effort as for a block with 10,000 transactions.
The format of target is a floating-point encoding using a 3 byte mantissa, the leading byte as exponent (where only the 5 lowest bits are used) and its base is 256.
It is not possible for two nodes to be working on the same Merkle root because the Coinbase transaction is unique to that node, generating a different hash output. Every hash attempt made has the same chance of winning as every other hash calculated across the network.
Note that the hash, which is a 256-bit number, has lots of leading zero bytes when stored or printed as a big-endian hexadecimal constant, but it has trailing zero bytes when stored or printed in little-endian. For example, if interpreted as a string and the lowest (or start of) the string address keeps lowest significant byte, it is little-endian.
Most block explorers display the hash values as big-endian numbers; notation for numbers is usual (leading digits are the most significant digits read from left to right).
This content is based on content sourced from https://en.bitcoin.it/wiki/Block_hashing_algorithm under Creative Commons Attribution 3.0. Although it may have been extensively revised and updated we acknowledge the original