Bitcoin mining refers to digitally adding transaction records to the blockchain – an openly distributed ledger containing the history of every bitcoin transaction. Essentially, it’s a record-keeping process executed through extensive computing power. Each Bitcoin miner worldwide contributes to a decentralised peer-to-peer network to guarantee the payment network is trustworthy and secure.
Bitcoin mining computers solve complex mathematical problems by adding to the blockchain ledger. When a solution is attained, the latest block of validated transactions is added as the following link in the blockchain.
As an incentive to mine and contribute to the network, the miner who resolved the problem is rewarded a “block” of Bitcoin.
Summary
Bitcoin mining requires powerful computers striving to solve complex mathematical problems of the Bitcoin algorithm.
Solving these problems helps maintain the blockchain ledger and secure network trustworthiness.
All Bitcoin miners commit to this process. The miner who solves a mathematical problem is awarded Bitcoin.
Basics of Bitcoin Mining
There are three ways to obtain Bitcoin:
The manner of producing new Bitcoin is called “mining” because it is, essentially, data mining. With gold mining, miners explore the earth in hopes of striking, well, gold. With Bitcoin, miners try to find Bitcoin by resolving complex mathematical problems using the blockchain, which is the technology upon which the entire concept of cryptocurrency is built.
It is a digital string of blocks, with each block containing a group of Bitcoin transaction data. Miners add to the blockchain by utilising computer processing power resulting in a block being successfully added to the chain. The miner who solves the problem is granted Bitcoin.
All of the above forms the basis of Bitcoin mining keeping the payment network secure and trustworthy. The network is built on the peer-to-peer principle, meaning that every single miner across the globe is donating their computing power to maintain the network, validate its transactions, and keep them secure.
10 Minutes per Block
Satoshi Nakamoto, the inventor of Bitcoin, created the Bitcoin network to allow a block to be mined every 10 minutes. To keep this 10-minute pace, the complexity of the mathematical problems adjust automatically.
When more miners attempt to mine, the level of complexity will increase. When there are fewer miners and less computing power, the level of difficulty will decrease.
Evolution of Mining
At the inception stages of Bitcoin in the early 2000s, people interested in Bitcoin mining could do so using their personal computers. As its popularity increased, so did the difficulty of mining.
Soon, miners used gaming computers for mining. The difficulty of mining and the amount of computing power required increase exponentially. More computer processing power is needed today to accommodate the growing level of difficulty.
Eventually, processors were created for the sole purpose of mining Bitcoin. Today, efficient hardware with strong computing capabilities and energy efficiency is a bare necessity for a miner.
Solving the Bitcoin algorithm to add to the blockchain and earning Bitcoin requires an enormous amount of electricity. Keeping electricity expenses low is key to making Bitcoin mining effective and sustainable.
Block Reward
The block reward is how much Bitcoin is remunerated for each block that is solved and appended to the blockchain. The block reward is meant to “halve” for every 2,016 blocks mined. It is termed the “halving” process and occurs every four years.
The most recent halving occurred in May 2020. Below are the historical block rewards, dating back to 2012:
2012: 25.00 BTC
2016: 12.50 BTC
2020: 6.25 BTC
It means that in 2020, for each block a miner resolves, they will earn 6.25 Bitcoins. The halving will proceed until the last block is mined. With each block of Bitcoin mined in 10 minutes, the final coin is to be minted in 2140.
Design
With the blockchain, the network is serviced and maintained by the entire global community of miners, each confirming the legitimacy of every transaction. As an incentive to participate, miners are awarded a block for their contributions.
Why Mine Bitcoin?
Bitcoin is decentralised, which means that transactions are happening globally without government limitations or any other impediments.
With the most advanced mining technology, Bitcoin mining can be broken down to ascertain a stream of income based on the yield of mining rigs (computers). The following are the essential factors to Bitcoin mining profitability:
Computing hardware
Miners need to have the latest hardware to compete with the growing requirements for prosperous mining. Equipment can become antiquated in a matter of months. The hardware designed specifically for mining can be costly; the latest ASIC mining gear costs over €1,500 per node.
Power costs
Power will be the main running expense. Electricity is priced per kilowatt-hour (kWh). Profitability for mining can differ from €0.03 – €0.08 per kWh. A shift in a few cents can make all the difference for mining profitability. It is crucial that a miner can use power at the most inexpensive possible cost.
Bitcoin price
The price of Bitcoin is essential in mining because miners earn a certain amount of Bitcoin when they solve math problems. Currently, the Bitcoin block reward is 6.25 coins, so you will want those coins to be worth as much as possible. If you receive 6.25 coins and the price of Bitcoin is $5,000, your mining formula will likely be profitless. If the price is $50,000 a coin, though, your mining plan may yield astonishing profits. As you can see, the right blend of the factors mentioned above makes mining an attractive enterprise.
The other idea behind mining Bitcoin is its investment potential. Proponents of Bitcoin prophesise the price shooting up way past €100,000 per coin (at the time of writing (Sept 2021) the price is $51,560). With a finite quantity of Bitcoin available to mine, the market will skyrocket as the number of available coins shrinks.
Requirements to Begin Mining Bitcoin
To mine Bitcoin, the following is required:
- Ultra-modern mining computers (rigs)
- Low-cost power supply
- Mining software
- Mining pool membership
Mining Pools
The concept of Bitcoin mining pools arose to tackle the issue of increasing mining difficulty. A collective pools their computing power together to mine for Bitcoin together. If the pool solves a block, all miners are awarded Bitcoin per their contribution of computing power.
The odds of a single miner receiving a block reward are weak, but those odds skyrocket when you pool thousands of rigs collectively. Mining pools are now deemed essential in mining Bitcoin successfully.
