A Bitcoin is created every time a puzzle is solved by a program designed to solve the puzzle, called a miner. Bitcoin becomes increasingly difficult to mine as more people join, which lowers the chances of a puzzle being solved by one program, person, or group. Mining pools were created to share the computing power across many miners to increase the chances of solving a puzzle. Pools split the profits when a Bitcoin puzzle is solved, but this reduces the payout for everyone in the pool.
Bitcoin mining refers to the process of digitally adding
transaction records to the blockchain, which is a publicly distributed ledger
holding the history of every Bitcoin transaction. Mining is a
record-keeping process executed through immense computing power. Each Bitcoin
miner around the world contributes to a decentralized peer-to-peer network to
ensure the payment network is trustworthy and secure.
Basics of Bitcoin Mining
There are three ways to acquire Bitcoin:
- Purchase them on an exchange
- Receive them in exchange for goods and services
- Mine new Bitcoin
The Process of Mining
Bitcoins
A new block is created every 10 minutes. This means that
about six times an hour, Bitcoin miners are involved in a massive competition
to receive a block reward.
Mining Bitcoins takes a lot of computing power, and the lucky
person who gets to validate a block will have solved a mathematical problem
before the rest of the network. (This is the whole rationale of proof-of-work,
as the high amount of processing power involved helps prevent denial-of-service
attacks.)
Solving the puzzle of how to mine Bitcoin means a new block
is formed, with a size of 1MB. Bitcoin transactions that are waiting to be
confirmed are then gathered from a mempool. The Bitcoin miner is likely to
prioritize Bitcoin users who are willing to pay high fees in their block of
transactions.
This new block also includes something known as a
"Coinbase transaction." This is how Bitcoin miners collect the 6.25
BTC reward for their efforts, as well as the transaction fees of every payment
included in their block.
Why Mine Bitcoin?
Bitcoin offers a disrupting technology in the blockchain. The
currency itself is decentralized, allowing transactions to happen globally without
government restrictions and delays. Miners of Bitcoin see value in the
decentralization of cryptocurrency.
With the latest mining technology, Bitcoin mining can be
broken down to determine a stream of income based on the output of mining rigs
(computers).
Requirements to Begin
Mining Bitcoin
- To start mining Bitcoin, the following are required:
- Competitive mining computers (rigs)
- Low-cost power supply
- Mining software
- Mining pool membership
Should You Start
Bitcoin Mining?
Sadly, Bitcoin mining is far from straightforward. It uses an
insane amount of electricity. (To put this into context, the blockchain gobbles
up 68.13 Terawatt hours of power every year — that's the equivalent of the
Czech Republic, a country with 10.7 million people. A single transaction is
equivalent to the electricity that a typical U.S. household would use in 20
days. That's according to research by Digiconomist.)
Bitcoin mining can be profitable — especially in areas where electricity is fairly inexpensive. Levels of profitability are also dictated by the current price of Bitcoin. Going to all this effort might not really be worth it if BTC is only valued at $4,000. Getting involved when mining difficulty is low also delivers a greater chance of landing you some sweet, sweet crypto.
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