A nonce is a crucial component in blockchain networks that utilize the Proof-of-Work (PoW) consensus algorithm, with Bitcoin being a prime example. So, what is a nonce in blockchain? How does it work, and why is it important?
What is a Nonce?
A nonce (short for “number used once”) is a random 32-bit number used in the process of mining new blocks in a Proof-of-Work (PoW) blockchain. Each block has a different nonce value, and miners must find a valid nonce to create a new block. In return, they receive a block reward in the form of the blockchain’s native token.
Finding a valid nonce requires miners to invest in relatively expensive hardware with significant computing power. Each nonce can only be used once and is specific to a particular block. This helps to:
- Ensure the uniqueness and unpredictability of each block added to the blockchain.
- Guarantee the safety and security of the blockchain.
- Protect the blockchain from 51% attacks and double-spending.
How Nonces Work in Blockchain
First, to understand how nonces work in blockchain, it’s necessary to understand the components of a block.
A blockchain consists of “blocks” linked together to form a “chain.” Each block has two main components: the block header and the complete transaction data within the block. The block header is a hash* containing information that identifies a specific block in the blockchain, including:
- Previous Hash: The hash (or block header) of the previous block.
- Timestamp: The time the block was created.
- Nonce: Each block in a blockchain has a unique nonce. This nonce is calculated during the block mining process and helps generate a unique hash value for the block.
- Merkle Root: The final hash value resulting from pairing and hashing transactions in a Merkle Tree.
*A hash is a string of characters encrypted using a cryptographic hash function from predefined input information.
Read more: What is Hashrate? The Importance of Hashrate in Crypto.
Therefore, when starting to mine a block, miners will use a hashing algorithm (such as SHA-256 for the Bitcoin blockchain) to run a hash function on the data within that block.
However, except for the nonce, which is the number they need to find, all other data is already available. To estimate the required nonce, miners use a trial-and-error method with a counter, starting from a certain value (usually 0).
First, the miner will continuously try and change the nonce value (if incorrect) to rerun the hash function until they find a hash value that meets the network’s conditions. For example, this hash value must start with a certain number of zeros.
- More specifically, if the condition is that the hash value must start with four zeros, then a valid hash value could be “0000abcd1234…”, but “1234abcd…” would be invalid because it does not start with four zeros.
- These conditions will change over time to adjust the mining difficulty, depending on the total computing power of the network (or the number of miners).
This means that miners may have to try millions or even billions of times to find the right nonce
Then, when the miner finds the correct nonce and runs a valid hash function, that block is sent to other nodes in the network for verification. If the hash value is valid and all transactions in the block are confirmed to be legitimate, the block is added to the blockchain.
At this point, the miner receives the block reward, including a certain amount of the blockchain’s native token and transaction fees from the transactions within the newly mined block.
The Importance of Nonces in Blockchain
In the operation of a PoW blockchain network (such as Bitcoin), miners cannot create new blocks, validate, or process transactions without finding a valid nonce. Thus, it can be seen that the nonce plays a crucial role in ensuring the operation of the entire blockchain.
The nonce also serves as proof that miners have gone through a process with a certain amount of work to “mine” a block. On the one hand, the process of finding a suitable nonce forms the basis for coin mining in blockchains that use the Proof-of-Work algorithm.
On the other hand, the nonce also helps ensure the security, integrity, and immutability of the blockchain network because changing the data in an existing block would require recalculating the nonce. This is a task that demands enormous computing power with significant hardware costs, making it practically infeasible.
Nonces help protect the blockchain from issues such as double-spending, 51% attacks, network spam, and denial-of-service (DDoS) attacks. This is because submitting fraudulent data to a block and validating it requires the attacker to become a miner, investing significant computing power and resources to find a valid nonce. This creates a natural barrier against system abuse or attacks.
Read more: 19 Notable Crypto Scams in the Market.
Nonce Difficulty
The difficulty of finding a nonce is dynamically adjusted to maintain a stable block creation rate on the network (for example, on the Bitcoin network, a new block is mined approximately every 10 minutes).
The difficulty of finding a nonce adjusts to changes in the network’s computing power, ensuring that miners face challenges proportional to the total computing power on the blockchain network. This means that:
- When more miners join the network, the total computing power of the network increases. Consequently, the difficulty also increases, requiring more power to find a suitable nonce.
- Conversely, when the number of miners or the network’s processing capacity decreases, the difficulty also decreases, making block mining easier.
However, to address the issue of increasing difficulty, miners can increase their computing power by upgrading their computer resources (also known as mining rigs) with more powerful and suitable hardware.
Higher-end computing resources allow miners to solve hash functions faster, thereby identifying valid blockchain nonces before other miners.
Furthermore, the difficulty of finding a nonce is related to the mining difficulty, a metric that represents the complexity of miners solving an algorithm to mine a new block on the blockchain.
Learn more: How Can Mining Difficulty Affect Things?
Frequently Asked Questions About Nonces
How Do Nonces and Hashes Differ?
Nonces and hashes are two closely related concepts in Proof-of-Work blockchains.
- A nonce is a 32-bit number that miners need to guess correctly to generate a valid hash for a block and add a new block to the blockchain, ensuring each block has a unique hash.
- A hash is a mathematical function that takes input data of varying sizes (including the nonce) and produces an output value of a fixed size (depending on the network’s requirements and conditions).
These two concepts work together to ensure maximum security for the information stored on the blockchain.
How Much Money Do Miners Earn from Finding Nonces and Mining Blocks?
By finding a valid nonce and successfully mining a block, miners will earn profits according to the following formula:
(Transaction Fees x Coin Price) + (Block Reward x Coin Price) – Costs
In this section, we’ll use Bitcoin as an example for easier understanding:
- The amount of new BTC created in the block reward is approximately 6.3 BTC/block since June 2021, and it will be halved after each Bitcoin halving event (every 210,000 blocks created, or about every four years), with the next one occurring in April 2024.
- The amount of transaction fees in each block varies depending on the transaction volume and transaction fee levels within that block. According to Dune (here), as of March 2023, the transaction volume on BTC was around 300,000 per day, equivalent to 23 BTC/day in transaction fees.
- The coin price directly affects miners’ profits. At the time of writing (February 4, 2024), the price of BTC is $43,068. On November 10, 2021, the price of BTC reached its all-time high (ATH) of $69,045. However, there have also been times when the price of BTC has dropped sharply to $16,700.
- Mining costs are difficult to estimate because they depend on the quality and processing capabilities of the hardware miners invest in. However, this cost is usually quite high, ranging from a few thousand USD to tens of thousands of USD.
Learn more: How Much Money Can You Make Mining Crypto per Month?
