How the Blockchain Works: Blocks, Miners and Confirmations

What you will learn

• What a transaction, a block and the blockchain are
• What miners do and what proof of work means
• Why confirmations matter and how long they take on average
• Why a confirmed transaction is very hard to change

Explanation

A transaction is a message that says "move this amount of bitcoin from these coins to this address". It is signed with the sender's private key (lesson 4). Nodes check that the signature is valid and that the coins have not already been spent.

Valid but unconfirmed transactions wait in a queue called the mempool (memory pool). Each node has its own mempool.

A block is a bundle of transactions plus a header. The header contains a reference (a "hash") to the previous block. A hash is a short digital fingerprint of data: if the data changes even slightly, the fingerprint changes completely. Because each block points to the one before it, the blocks form a chain: the blockchain, a public record of all Bitcoin transactions.

Miners are participants who build new blocks. To add a block, a miner must find a header whose hash is below a target number. The only way is to try a huge number of guesses. This is called proof of work: the result proves that a lot of computing work (and electricity) was spent. The winning miner receives the block reward: newly created bitcoin plus the fees of the transactions in the block.

The network aims for one block about every 10 minutes on average. Every 2,016 blocks (about two weeks), the difficulty adjusts: if blocks came too fast, finding one becomes harder; if too slow, easier. Single blocks can still arrive after one minute or after an hour.

A confirmation means your transaction is in a block. Each new block on top adds one more confirmation. To change an old transaction, an attacker would have to redo the proof of work for that block and all later blocks, faster than the rest of the network. The more confirmations, the harder this becomes. Many services wait for several confirmations (often around six for larger amounts) before they treat a payment as final. Check what your provider uses.

Worked example

Hypothetical example: how long might you wait, and how often does a small miner win?

Assumptions: the network produces exactly one block per 10 minutes on average. Real times vary.

1. Blocks per day: 24 hours × 60 minutes ÷ 10 minutes = 144 blocks.
2. Time per difficulty period: 2,016 blocks × 10 minutes = 20,160 minutes ÷ 60 ÷ 24 = 14 days.
3. Average wait for 6 confirmations after your transaction is first included: about 6 × 10 minutes = 60 minutes. If your fee is low, you may also wait in the mempool before the first confirmation.
4. A hypothetical miner controls 0.5% of total mining power. Expected blocks per day: 144 × 0.005 = 0.72 blocks. Some days it finds none, some days two. This is why small miners often join mining pools and share rewards.

Excluded: the electricity and hardware costs of mining, and fee levels, which change with demand.

Common mistake

Practice activity

Assume blocks arrive every 10 minutes on average. (a) A service requires 3 confirmations. About how long is the average wait after the first inclusion? (b) How many blocks are produced in a week? (c) A miner has 2% of total mining power. How many blocks would it expect per week?

Limitations: block times are random; averages describe many blocks, not the next one.

Key takeaways

• Transactions are grouped into blocks that point to the previous block, forming the blockchain.
• Miners use proof of work to add blocks and receive new bitcoin plus fees.
• The network targets about 10 minutes per block and adjusts difficulty every 2,016 blocks.
• More confirmations make a payment harder to reverse; confirmed payments cannot be undone by anyone.

Next step

In the next lesson, you will learn how new bitcoin are issued and how the halving reduces issuance.