The Bitcoin world has a lot of hidden moving parts to ensure it continues working, with a lot of us taking this for granted. One of the most overlooked parts of Bitcoin is the mining process and just how vital it is to the cryptocurrency. Mining provides the network foundations through its decentralized structure and it’s this structure that keeps Bitcoin so safe. Without the huge network of miners, Bitcoin would be a token with no value at all – a bit like an online game ten years after launch when the developers have stopped maintaining it.
Last week we brought you the history of Bitcoin; so without further ado, let’s delve into the slightly obscure world of Bitcoin mining.
What is Bitcoin Mining?
Bitcoin mining is the process whereby a computer solves a complex mathematical puzzle to create a totally unique hash full of data – this is called a block. Once a unique hash has been verified by at least 51% of the network nodes, it is added to the blockchain and the miner that solved the puzzle is rewarded with BTC. This entire process takes roughly ten minutes, however there are times it can take a little bit longer – but this isn’t very common. The data in these complex math puzzles are the transactions made with Bitcoin, it’s similar to how your bank takes time to process payments between accounts.
What is the Difference Between a Miner and a Node?
It is a common misconception that they are the same thing, so don’t worry if you thought that as well. A miner is the computer owner who seeks to solve the mathematical equation to create a unique hash. Miners produce new blocks to add to the chain and ensure your transactions are completed so you can use your Bitcoin. Nodes are people running computers that keep a track of the blockchain. These people store the entire history of the chain and broadcast it to the world. Nodes verify transactions that other nodes broadcast and – once they are all in agreement – adds them to the blockchain. The nodes are not rewarded for their work, they simply verify transactions for the love of Bitcoin, whereas miners are rewarded with newly minted BTC.
How Can I Start Mining Bitcoin?
There are a few ways to go about mining Bitcoin, but unless you have access to cheap electricity – its largely not worth it as an individual. To begin with, you need to get yourself some ASIC mining hardware. This is largely available on the internet, you can even buy ASIC miners from Amazon if you wish. An ASIC miner is vital, as using your desktop PC just won’t cut it anymore. An ASIC is a specifically designed piece of equipment with a sole purpose of mining Bitcoins. Once you have your ASIC miner, you need some software to control it and tell the mining rig all sorts of things, ranging from where to send your Bitcoin rewards to which pool you wish to be part of.
Mining solo isn’t profitable, as you’re up against giants like Bitmain who control nearly 51% of the total network hash rate, meaning the chances of you winning the block reward is greater than winning the lottery. The best way to mine Bitcoin is by joining a mining pool. Simply point your hash rate to the mining pool and based on the percentage of hash rate you contribute to the pool, you will receive that percentage of the block reward – should the pool create the next block for the blockchain. Before you get started and sink a lot of cash into mining Bitcoin, check your electricity costs versus how much you will be earning, as it can quickly become unprofitable. In areas like Venezuela, mining has become a common activity as the cost of electricity is virtually free. In New York the government has given municipalities the ability to give Bitcoin miners lower electricity rates, so make sure you check out prices in your local area.
What is Hash Rate?
Hash rate is the amount of hashes – the complex math puzzles – your miner can compute per second. The higher your hash rate, the more hashes your miner is testing per second, and the better chance you have at creating the next block in the chain. When miners get close to controlling 51% of the total network hash rate, the crypto community gets a little edgy, as it essentially gives those miners the ability to take over the network. But, unless you’re prepared to sink billions of dollars into mining equipment, you won’t get close to the 51% mark on your own.
What Happens to Miners Once All the Bitcoins Have Been Mined?
There will only ever be 21 million Bitcoins in existence, it stands to reason the mining rewards will soon run out. However, Satoshi Nakamoto was one step ahead when he (or she) created Bitcoin. Once all the Bitcoins have been mined, the miners will receive transaction fees. The idea behind this is that by the time all the Bitcoins have been mined, Bitcoin will be more popular and transaction volumes will be considerably higher, meaning there is more money being put aside in transaction fees to pay the miners. So don’t worry, if you’re already mining – or looking to get into it – there is always going to be money and rewards up for grabs.
What is Block Difficulty?
Currently, each block mined is worth 12.5 Bitcoin and at a current price of $8,126 each, that gives you a pretty juicy reward. To ensure Bitcoins aren’t being mined left, right, and center, there is this mechanism in place called block difficulty. The Bitcoin code essentially dictates that the final hash that a miner creates must be below a certain target, and the block difficulty is a measure of how hard it is to find a unique hash below this target. Currently, the block difficulty is 5,949,437,371,610 – meaning it’s pretty tough to find that perfect hash. The higher this number goes, the harder it becomes to mine Bitcoin.
Simply Scratching the Surface
This is only an introduction to Bitcoin mining, because – as the name of this blog suggests – it simply covers the basics. The Bitcoin mining world is infinitely large and there are lots of intricate dealings going on inside of it. For example, Obelisk successfully attempted to create their own ASIC mining rigs, but were challenged at every turn when doing so. What you can take away from all of this is that Bitcoin mining truly is a world unto itself, with it certainly being a world that is well worth exploring.
Next week our “Back to Basics” series rumbles on, as we’ll take a look at how to get your hands on Bitcoin and some of the different ways you can go about doing so. Until then, stay tuned to BitStarz News for the latest cryptocurrency news and exclusive interviews.