All about Bitcoin mining
What comes to mind when you hear the word “mining?” Naturally, most people think of excavators, digging, miners and a lot of manual labor involved. Bitcoin mining, on the other hand, is quite far from this. Bitcoin is not a natural resource. It is one of many cryptocurrencies touted to replace regular fiat money. Cryptocurrencies have a decentralized payment system that allows traders to transact directly without involving an intermediary.
Although there cannot be more than 21 million bitcoins ever and at the moment the available Bitcoins are fewer than that, these bitcoins don’t just appear out of nowhere. The computer programming written by the founder of bitcoin “Satoshi Nakamoto” is responsible for the generation of new bitcoins blocks which brings us to the topic “bitcoin mining.”
What is bitcoin mining?
Bitcoin mining refers to the steps taken, the process by which trades or transactions are added to the blockchain after being verified. The verification process is done by people who own expensive mining machines. The miners are rewarded with transaction fees paid by traders and a number of bitcoins for each block of bitcoin they mine.
The mining process which involves the compilation of recently carried out transactions into blocks and solving complex mathematical algorithms to generate new bitcoins. Generally, bitcoin mining is the only way new bitcoins can come into existence. The individuals involved in the mining of bitcoins are known as “miners”.
Many miners also work in groups called pools. Learn all about pools at: https://www.abitgreedy.com/bitcoin-mining-pools/.
Is mining important?
What does the Dollar, pounds, Euros, Yen and the Korean Won have in common? They are regulated by the central bank of the country and are printed in proportion to the resource output. By contrast, Bitcoin is a decentralized digital currency. Since the bitcoin network runs under an online public ledger system when a transaction is carried out, it needs to be confirmed by other miners all over the world which protects bitcoin from being spent twice. This in turn rewards miners with Bitcoins and by so doing more bitcoins are injected into the economy. So it is safe to say mining is a security measure to protect bitcoin and at the same time it is responsible for the generation of new bitcoins.
How does mining work?
Like we mentioned earlier, you don’t need excavators, helmets, and overalls to mine bitcoin. Miners just need to download mining software, whichever one they prefer from the array of available software. The software basically does a compilation of recent transactions made on the network into blocks, runs and solves complex mathematical equations.
The miner who solves the mathematical puzzle first places the solved block on the blockchain to get his reward which is the bitcoin tokens. This mining will continue until 21 million bitcoins have been generated in total in the market. The more Bitcoins are mined, the more complex and the more intense it becomes to mine new ones. In order for bitcoin to last longer and circulate in the economy since it is decentralized, the reward for mining bitcoin is halved every 2016 blocks. The reward for bitcoin mining started at 50 bitcoin per block and has decreased by half ever since it is currently at a rate of 12.5 bitcoins per block. By the time the halving reduces to the barest minimum, 21 million bitcoins would have been mined by the mining community.
Early miners needed only a single simple computer at the hardware required to mine bitcoin. At a rate of 50 bitcoins per block, the standard CPU could carry out the operation hitch and glitch free. Although at that time this seems like the best option for mining Bitcoins.
Later on it was discovered that GPU serves a better purpose than it CPU counterparts for mining. With hash rates of 50 to 100, GPU mining is faster than CPUs. GPU mining became the best thing until the development of the field-programmable gate array (FPGA) processors which further increased the levels of hash rate previously experienced by Bitcoin miners.
The FPGA miner consumed lesser power than the CPU and GPU combines and it also made it possible for miners to start a proper mining pool with thousands of interconnected FPGA miners: https://mineshop.eu/fpga-miners.
ASIC Mining Hardware
With more established technology companies showing great interest in the cryptocurrency industry, and the need for a much better and effective way of mining Bitcoins. The ASIC miners were then developed as a perfect and maybe a permanent solution to effective Bitcoin mining.
The Application-specific integrated circuit chips (ASICs) are built specifically with the intent of only being able to solve the Bitcoin blockchain mathematical equations. This means the ASIC miners are quite useless for any other function apart from mining Bitcoins. This reduces wastage and no other component of the hardware pull power and resources for it uses, thus reducing the power consumption and increasing the efficiency of the device.
Unlike the CPU or GPU, the cost of an ASIC Miner is dependent on its hash rate and other factors. The most expensive ASICs cost in the upwards of $2000 but there are affordable, profitable miners that cost slightly above $1000.
The price of an ASIC miner is naturally dependent on the current value of the Bitcoin, so the higher Bitcoin goes in value, the higher the price of ASIC miners.
Although in recent times, it is actually better to buy BTC than to actually venture into mining Bitcoins. This is due to the fact that bitcoin mining has becoming really hard than previous times and the return on investment is no longer that encouraging.
What are bitcoin Mining pools?
A bitcoin mining pool can be considered to be the resulting products of several miners pulling their mining resources together under one big umbrella, to achieve a faster mining harsh rates leading to finding a block quickly. Upon finding a block, the rewards are then being shared based on the number of power resources contributed by each member of the mining pool. Which means the more resources a miner offers the pool, the more his or her shares upon finding the block.
With the difficulty of finding a bitcoin block increasing drastically, the best approach for small time miners is to join a mining pool. The reason is that in recent times, a small-time miner will have to spend more than a century before finding a block, but joining a bitcoin mining pool will increase the chances and make such miner susceptible to receiving profit from finding a block
Also published on Medium.