Bitcoin has been seen drawing in traction since 2015, where more and more investors and crypto enthusiasts flocked in to join the community, either for interest or to make a quick buck.
Purchasing Bitcoins on any exchange like Coinbase is relatively simple and allows you to obtain fractions of cryptos, there are those who choose to mine their cryptocurrencies.
One of the popular questions many have about Bitcoin twirls around the coins themselves. There have been questions about the coin’s value, security, and history.
However, all these questions eventually lead to one: Where do bitcoins come from?
While conventional currency is created via central banks, bitcoins are mined by Bitcoin miners: who are network participants that carry out extra tasks.
Bitcoin mining is quite similar to gold mining in the context that the bitcoins subsist in the protocol’s design, just the way gold exits underground, but they have not been bought up yet.
The bitcoin protocol specifies that 21 million bitcoins exits at some point. What Bitcoin miners do is that they bring them out of the protocol, a few at a time.
In the case of Bitcoin, miners are remunerated new bitcoins every 10 minutes.
The rate of issuance is set in the code, so miners cannot deceive the system or generate bitcoins out of thin air. They have to use their computing skills to generate new bitcoins.
Also, they order transactions chronologically by adding them in the Bitcoin blocks they discover.
This limits a user from using the same bitcoin twice. It solves the double spend problem.
Bitcoin mining is further away from the reach of an average Bitcoin owner these days, but that doesn’t diminish its significance.
Mining is the process that maintains the cryptocurrency function as proposed and what resumes to introduce new Bitcoins into digital wallets all around the world.
Bitcoin runs differently compared to other traditional currencies.
Where fiat currencies are managed by banks and other financial institutions who collectively verify when transactions occur. Bitcoin works on the basis of a public ledger mode.
They make use of Ledger mode, for the transactions to be approved – that is to stop the same Bitcoin from being used twice.
To give an example – a number of Bitcoin nodes, run by miners around the world, need to provide it with their seal of permission.
Process of Mining
The process of collecting bitcoins can be bought down to a simple explanation.
Miners, purchase powerful computing chips that have been designed specifically for the process and use them to run specially crafted software.
That software requires the system to perform complicated calculations. If everything goes per plan, the miners are paid with some Bitcoin at the end of their toils.
Before getting into the technical details, let me try and explain it this way: finding a block resembles a kind of network lottery.
For each effort to try and find a new block, which is a random guess for a number, a miner has to contribute a small amount of his energy.
Most of the tries result in failure, and all the spend energy would be wasted. Only in about every ten minutes could a miner succeed and add a new block into the blockchain.
Which, also means that any time a miner discovers a valid block, it must have burned much energy for all the lost attempts. This known as proof of work is at the core of Bitcoin’s progress.
Proof of work stops miners from creating bitcoins out of nowhere. S
If a hacker were to try and reverse a transaction that occurred in the past, that hacker would have to repeat and redo all the work that has been done before since to catch up and build the lengthy chain.
This is nearly impossible and is why bitcoin miners are said to safeguard the Bitcoin network.
In exchange for defending the network, and as the “lottery price” that serves as payment for spending this energy, each new block comprises a unique transaction.
It’s this transaction that grants the miner new bitcoins, which is how bitcoins primarily come into the transmission.
When Bitcoin’s were launched, each new block awarded the miner with 50 bitcoins, and this amount become half every four years.
At present each block comprises 12.5 new bitcoins.
Also, miners get to hold any mining fees that were connected to the transactions they added in their blocks.
Anyone can be a Bitcoin miner to work and collect these coins.
Nevertheless, Bitcoin mining has become more specific over the years and is often done by dedicated experts with functional hardware, low priced electricity and often big data centers.
These days, to mine competitively, you will have to have a clear idea of what you’re doing.
You should be willing to invest in significant capital and time, and you must have access to cheap electricity.
If you have all of this, you too can give it a try and become a Bitcoin miner.
Now let’s discuss some technical terms related to mining.
They do this by solving a complicated mathematical puzzle that is a part of the bitcoin protocol and adding the answer in the block.
The puzzle is to find a particular number that, when coupled with the data in the block and crossed through a hash function, returns a result that is within a specified range.
The process is much complex than it appears.
Among miners, this number is known as a nonce, which means – number used once.
For bitcoin, the nonce is generally an integer lying between 0 and 4,294,967,296.
Solving the Puzzle
You may wonder how they find this number. Simple, by guessing a random number. The hash function makes it very unlikely to predict the output.
So, miners randomly guess the mystery number and implement the hash function to the sequence of that guessed number and the data coupled to the block.
The resulting hash function has to begin with a pre-defined number of zeroes.
There’s practically no way to know which number will run since two consecutive integers will give a wild variety of outputs.
There may be various nonces that provide the desired result, or there might be none in which case the miners can keep trying, but with another block.
The first miner who gets a resulting hash within the set range declares it’s victory to the network.
All the other miners instantly stop their work on that block and will move on to figure out the mystery number of the next one.
As a prize for its work, the victorious miner receives some new bitcoin.
Is Bitcoin Mining Profitable
Mining cryptocurrency might appear to be a no-brainer. You set up a computer to help resolve complex math puzzles and you are remunerated with a coin or a division of a coin.
The bitcoin miners who came in first were able to earn coins comparatively quickly, just using what calculating power they had in their homes.
By 2019, cryptocurrency mining has grown to be a little more complicated and intricate. With bitcoin, the reward is made half every four years.
Along with that, serious miners have created huge arrays to mine, making it difficult for smaller miners to compete.
You can always join a bitcoin mining pool if you want to be more productive, but that does come with a fee, diminishing your earnings.
Some crypto miners also opt for other currencies. There are other cryptos worth very less in U.S. dollars.
However, it’s reasonable to use what you mine and turn it into fractional bitcoins on an exchange than waiting for bitcoins to regain value.
Cloud mining means purchasing time on someone else’s equipment. Companies such as Genesis Mining and HashFlare credit you based on what they call a hash rate, which is basically your processing power.
If you buy a higher hash rate, you are assumed to receive more coins for what you pay for, but it will also cost you more.
Depending on what company you pick, you might pay a monthly charge, or you could pay according to the given hash rate. Some companies might also charge you a maintenance fee.
In general, cloud miners could allow you access to bitcoin, but they do come at higher rates.
In some cases, you will be to sign a year-long contract, bolting you in. If the worth of the cryptocurrency falls, you could be caged in an expensive, contract.
Also keep in mind that, depending on what cryptocurrency you mine, it could take up to several months before your cloud mining investment turns profitable.
However, with cloud mining, you wouldn’t have to worry about power consumption expenses and other direct expenses related to doing all of the mining with your own equipment.
The growing costs of mining and competing against large mining pools have made it difficult for the small scale miners to profit on mining bitcoin.
It’s virtually impossible to mine enough bitcoin to recoup your initial cost of equipment and electricity.
But if you’re not so concerned about making a buck, you could have fun planning for this cool currency.
Only those with specific, high-powered equipment can effectively extract bitcoins these days.
While mining is technically possible for any person, those with less developed setups will find more money is wasted on electricity than is earned through mining.
In other words, mining won’t be rewarding at a small scale until you have access to free or surprisingly cheap electricity.
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