🟢Step 1: Hashing transactions

👉The first step of mining a block is to take pending transactions from the memory pool and submit them, one by one, through a hash function. Each time a piece of data is run through a hash function, an output of fixed size called a hash is generated.

👉In the context of mining, the hash of each transaction consists of a string of numbers and letters that acts as an identifier. The transaction hash represents all the information contained in that transaction.

🟢In addition to hashing and listing each transaction individually, the miner also adds a custom transaction, in which they send themselves the block reward. This transaction is called the coinbase transaction and is what creates brand new coins. In most cases, this transaction is the first to be recorded in a new block, followed by all the pending transactions awaiting validation.

🟢Step 2: Creating a Merkle tree

👉After each transaction is hashed, the hashes are organized into what is called a Merkle tree (also known as a hash tree). A Merkle tree is generated by organizing transaction hashes into pairs, then hashing them.

🟢The new hash outputs are then organized into pairs and hashed again, and the process is repeated until a single hash is created. This last hash is also called the root hash (or Merkle root) and is basically the hash that represents all the previous hashes used to generate it.

🟢Next topic

🔵Finding a valid block header (block hash)