- Bitcoin mining is central to the operation of the Bitcoin blockchain
- Miners ensure that the Bitcoin blockchain is keeps running and is protected
- Miners are also the recipients of the new bitcoin that enters the ecosystem
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 is 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.
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 existing chain (the ‘blockchain’) and the miner that solved the puzzle is rewarded with bitcoin
This entire process takes roughly ten minutes, although there are times it can take a little bit longer. This isn’t very common though. 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?
A common misconception among new users is that miners and nodes 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, producing new blocks to add to the chain and ensuring your transactions are completed so you can use your bitcoin.
Nodes on the other hand are people like you and me who Bitcoin software that keep a tracks of the blockchain. These people store the entire history of Bitcoin transactions on their hard drive and broadcast it to the world. Nodes verify transactions that other nodes broadcast and, once they are all in agreement, add them to the blockchain. Whereas Bitcoin miners are rewarded with newly minted bitcoin, nodes are not rewarded and simply operate nodes out of support for the network.
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 of 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, so at some point the mining rewards will run out. This is predicted to be the year 2140. 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 if you’re already mining or looking to get into it, don’t worry, there is always going to be money and rewards up for grabs.
What is Block Difficulty?
To ensure bitcoins aren’t being mined left, right, and center by ever more powerful computers, there is a 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 in the tens of trillions, meaning it’s pretty tough to find that perfect hash, and the higher this number goes the harder it becomes to mine bitcoin. The Bitcoin block mining reward halves every 210,000 blocks to combat increasing computer power and keep the issuance reasonable.
How Can I Start?
There are a few ways to go about Bitcoin mining, but unless you have access to cheap electricity it’s largely not worth it as an individual. if you want to give it a go however you’ll need 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’ll need some software to control it and to tell the mining rig all sorts of things, including where to send your bitcoin rewards to.
The best way to mine Bitcoin is by joining a mining pool rather than going it alone. 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 your pool create the next block for the blockchain.
Before you get started and sink a lot of cash into Bitcoin mining, check your electricity costs versus how much you will be earning as it can quickly become unprofitable. Bitcoin mining has become popular in areas with cheap or renewable energy, and running a Bitcoin mining setup using your home tariff is not advisable.
Simply Scratching the Surface
This is only an introduction to Bitcoin mining, and there is much more to explore if you are interested. There are plenty of resources online that cover everything from the theory behing Bitcoin mining to the logistics of running a Bitcoin mine. Oh, one more thing, make sure you have some ear defenders – the average ASIC miner is about as loud as a busy city street, and you’re going to need much more than one.