Cryptocurrency mining is the process of validating and adding transactions to a public ledger, known as the blockchain. This is often done by solving complex mathematical problems, which requires specialized hardware. One of the primary objectives for any cryptocurrency miner is to generate a unique and valid nonce that can be used to secure a new block.
The first miner to generate that nonce and process a block is rewarded with new cryptocurrency tokens, and it has become an incredibly competitive practice — especially for valuable assets like Bitcoin. In this AAG Academy guide, we’ll explain what exactly a nonce is, how it is used, and its purpose when it comes to determining mining difficulty.
There are a number of different meanings for the word nonce, depending on the context, but in the cryptocurrency industry, it means a unique and random number that can only be used once. Nonces play an incredibly important role in the proof-of-work (PoW) system used by many of today’s cryptocurrencies, including Bitcoin, Litecoin, Dogecoin, and more.
Nonces ensure that every mining attempt is different, and they help secure individual blocks — which contain a group of transactions — so that they cannot be tampered with after they are added to the blockchain. However, not just any nonce will do. There are strict requirements a valid nonce must meet, and these can be adjusted to determine mining difficulty.
Because of this, miners typically have to guess many nonces before they find one that will be accepted by the blockchain. This process is computationally intensive, which is why only the fastest computers with specialized (and expensive hardware) can be used in the mining process for the most popular or most valuable cryptocurrency projects.
The only way to be rewarded for your work as a cryptocurrency miner is to successfully process a new block of transactions that can be added to the blockchain. To ensure that every block is as secure as possible, and that the data it contains cannot be altered later, it is assigned a hash — a unique string of numbers of a specific length. The hash is determined by the data inside the block, so if that data changes in any way, no matter how little, so does the hash.
Every new block is aware of the hash assigned to the previous block, so if just one hash changes, the blockchain will recognize that and reject it. This ensures that a bad actor cannot successfully tamper with a block in any way. In a bid to generate a valid hash and claim their reward, miners must first guess a valid nonce.
Miners use a cryptographic function, known as an algorithm, to try many different nonces until one of them is successful. This might seem like an incredibly convoluted protocol, and it is, but it is what every PoW blockchain relies on to be secure. If this protocol didn’t exist, or it was simpler, it would be too easy for bad actors to tamper with the data the blockchain relies on.
You might be interested in: What is hashing and how does it work?
To understand exactly how a nonce is used, let’s look at this process in more detail. As we mentioned above, every new block needs its own hash, and that hash is determined by the data inside the block. We can break that down into four things:
Three of these four things cannot be altered; we cannot change the block number, the transaction data, or the hash of the previous block — those things are set. However, it is possible to change the nonce. Therefore, this is the piece that gets adjusted over and over again until a miner finally lands on a nonce that produces a valid hash.
The time it takes to complete this process depends on the hash requirements set by the blockchain. For instance, Bitcoin specifies that the hash must begin with a certain number of zeros, and this is regularly adjusted to either speed up or slow down the mining process, depending on how busy the network is.
If the goal is to assign every block in the chain a unique hash, you might be wondering why it needs to be so difficult — why we can’t just use a simple hashing algorithm to perform this function in just a few seconds. The simple answer for that is that the mining process cannot be too easy, and there are two important reasons for that.
Firstly, let’s look at security. The fact that it is so difficult to successfully mine a new block inhibits bad actors from trying to create blocks with false transactions. The time and resources it takes means it is not cost effective, whereas if mining was quick and easy, bad actors could simply bombard the blockchain with false blocks in the hope that one sticks.
Secondly, the mining process generates new cryptocurrency coins and tokens, and it is important to ensure that too many aren’t being generated too quickly. When supply of a product outweighs demand, its value falls. One of the reasons why Bitcoin is so valuable is because so few coins are in circulation, and we can predict how quickly they are generated.
Nonce plays an important role in the generation of a hash, which secures every single block on the blockchain. It also helps ensure that mining isn’t too easy, which would devalue any cryptocurrency that uses the proof-of-work (PoW) consensus mechanism.
Nonces are used to generate a valid hash, which in turn ensures that a confirmed block cannot be tampered with in any way.
A nonce is calculated by using a cryptographic function, known as an algorithm, which is typically built into the mining software provided by a cryptocurrency.
This article is intended to provide generalized information designed to educate a broad segment of the public; it does not give personalized investment, legal, or other business and professional advice. Before taking any action, you should always consult with your own financial, legal, tax, investment, or other professional for advice on matters that affect you and/or your business.
Be the first to get our newsletter full of company, product updates as well as market news.