Coinbase

November 21, 2023 - Around 2 mins mins to read

Understanding Coinbase: A Key Component in Cryptocurrency Mining

When it comes to cryptocurrencies like Bitcoin (BTC), the process of mining plays a crucial role. Mining involves users contributing their computational power to ensure the secure operation of the coin. Miners are responsible for collecting the most recent transactions on the network, packaging them into blocks, securing these blocks with cryptographic hashes, and adding them to the end of the blockchain.

Mining, however, requires the expenditure of electricity and the use of specialized equipment. To incentivize miners, the network includes a special transaction in every new block. This transaction sends a specific amount of newly “mined” coins to the individual or organization that successfully mined that particular block. This transaction is commonly referred to as the generation transaction, and the coins included in it are known as the coinbase of the block.

Bitcoin, along with many other mineable coins, utilizes the unspent transaction outputs (UTXO) model. In this model, every transaction consists of inputs and outputs. The coins stored on addresses are not actual balances but rather collections of outputs from previous transactions to that specific address. In this context, the coinbase refers to the input of the generation transaction, where the same amount of coins is sent to the miner as the output.

When Bitcoin’s network was initially launched, the coinbase was set at 50 BTC. However, this amount is halved approximately every four years. As of November 2020, the coinbase is now equal to 6.25 coins.