- Bitcoin mining is a critical part of the ecosystem, and it’s important to know how it works
- Bitcoin mining involves specially-made computers solving complex mathematical problems
- There will only ever be 21 million bitcoin mined
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 with a foundation 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.
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, but there are times it can take a little bit longer. This isn’t very common however. The data in these complex math puzzles are the transactions made in bitcoin, 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 miners and nodes are the same thing but they are very different. 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. Miners use specific Bitcoin mining equipment which we will cover in shortly.
Nodes are regular people running Bitcoin software on 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.
Nodes are not rewarded for their work, they simply verify transactions for the love of Bitcoin, whereas miners are rewarded with newly minted BTC. in the event of a global apocalypse, as long as one of these nodes is still active somewhere in the world then the entire Bitcoin blockchain could be resurrected and continued.
How Can I Start Mining Bitcoin?
There are a few ways to go about mining Bitcoin, but unless you have access to cheap electricity and a few thousand dollars for the equipment it’s largely not worth it as an individual. However, let’s say you have both. To begin with, you need to get yourself some ASIC mining hardware. This is easily available online from manufacturers such as Bitmain and Bitfury, and you can even buy ASIC miners from Amazon if you wish. An ASIC miner is vital because the days of using your desktop PC to mine bitcoin is long gone. An ASIC is a specifically designed piece of equipment with a sole purpose of mining bitcoin.
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 a host of bitcoin mining giants such as F2Pool, Poolin, and AntPool who between them monopolize some 50% of the mining power behind Bitcoin:
This means 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, where you simply point your mining power 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 bitcoin in existence, it stands to reason the mining rewards will soon run out. However, Bitcoin’s creator Satoshi Nakamoto was thinking one step ahead when he (or she) created Bitcoin. Once all the bitcoin has been mined the miners will receive transaction fees, with the idea behind this being that by the time all the bitcoin has been mined it 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 6.25 BTC and at a current price of $60,000 each that gives you a pretty juicy reward. To ensure bitcoins can’t be 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. The higher this number goes, the harder it becomes to mine Bitcoin.
Bitcoin Mining – 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, not least the challenge of reducing its carbon footprint.
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.