We shall now see how a new block of bitcoin transaction is created.
A bitcoin miner creates a block by using the following steps −
- Gathering pending transactions, preferentially those with transaction fees first, and then the free ones
- Verifying the transactions for their validity
- Solving a hashing problem
According to the statistics, in October, 2015, blockchain.info site stated that, the average number of transactions per block was 411, and as of May 2018, the current number of pending unconfirmed transactions is around 2495.
Reward and cost per bitcoin transaction
Assuming that one bitcoin is worth $400, the reward of 25 bitcoins per block is worth around $10,000, ignoring negligible amount of transaction fees. Taking average number of transactions per second as 2, and the number of transactions per block as 1200, the reward per transaction works out to $8.33. It is found that the cost of electricity consumed in mining is close to the reward which makes mining bitcoins not so profitable. The basic problem of mining as of now, is the 1 MB limit on block size which makes it possible to have at most only 10 transactions per second.
Confirmation of a bitcoin transaction
A transaction is considered to have received n confirmations if it has been published in a block in the block chain, and n-1 more blocks have also been added. A transaction is normally considered “confirmed” once it has six confirmations. Newly created Bitcoins are considered confirmed after they have received about a hundred confirmations.