How Does Bitcoin Mining Work?

What is mining?

Mining is the process of creating new Bitcoins, built on the basis of solving complex mathematical problems using computers. Mining is the only way to issue cryptocurrency. Another meaning of the word “mining” is the minerals extraction or deposits developments. While talking about Bitcoin, we are dealing with the “virtual gold extraction”.

Who is engaged in the Bitcoin emission?

People who are engaged in mining are called miners. This word also denotes specialized devices installed into computers for the single purpose – Bitcoin mining.

What does it really look like?

To a certain degree, we can compare miners to torrent trackers participants who allow other users to download movies or music by running special software. When we talk about Bitcoin, miners keep up the payment system functioning, confirm transactions, and follow a consensus of the entire network’s unified and unchanged status. They receive Bitcoins as a reward.

BitcoinHow does the mining process take place?

The mining process involves calculating the hash function (output data) of the block header in a blockchain. The block includes the header hash of the previous block, a transaction hash, and some random number. Upon creating a new block, a miner receives a reward – a certain number of Bitcoins. A lot of miners simultaneously “compete” to win that reward. In general, the transactions included in the block are considered to be confirmed after six blocks in a row have been calculated.

What does cryptocurrency mining look like?

Nowadays, the cryptocurrency emission mostly takes place in dedicated data centers which are also called mining farms. Virtually, the farm is a room with a certain number of computers with mining software installed on them. The necessary temperature condition is maintained in the room itself, or some other cooling techniques are utilized.

Is mining a profitable occupation?

Several factors at a time determine the economic viability of mining: the electricity rates, the hardware performance, the current complexity, and the Bitcoin market exchange rate compared to other currencies. At the very beginning of the Bitcoin existence, mining was quite accomplishable at home. Today, the process requires huge computing powers. A great number of miners in the network entail strong competition among them, as a result of which, the complexity of mining increases and miners receive smaller rewards.

What equipment is necessary?

When Bitcoin came into existence, it was possible to mine it, using home computers with more or less powerful video cards and ASIC chips installed. These days, things are completely different. The modern mining process involves expensive dedicated devices and chips, the production of which has already become a separate multimillion-dollar industry.

Hence, it makes no sense to get involved in this alone, does it?

In most cases, the answer is “no” unless you have enough money to purchase expensive computer equipment and are able to pay maintenance costs. Nonetheless, no way it means you do not have a chance to earn conducting Bitcoin mining activities. To involve ordinary users into the process, so-called pools of miners exist. Pools can unite hundreds and thousands of cryptocurrency miners who receive their share of the reward according to their investment amount into the business. The network treats each pool as one miner, producing hundreds of gigahashes per second, although actually, this is one main server distributing tasks to individual miners. This kind of practice is more efficient and provides a faster reward, although doing it in smaller parts.

What reward can I expect?

According to the original Bitcoin technical document written by Satoshi Nakamoto, the reward for finding a new block is halved every four years: in early 2013, it was 50 BTC, then it decreased to 25 BTC, and in the summer of 2016, it was halved to 12.5 BTC. The next halving of the reward will take place in 2020.

If you are a member of a pool, this reward is given to the entire pool which distributes it among the participants. When every 2016 blocks are found or about once every two weeks, the process of finding blocks becomes more complex. With network capacity increase, the complexity also increases.

You can calculate your potential profit using our Bitcoin Mining Calculator.

 

Read more on Bitcoin:

How Do Bitcoin Transaction Work?

How Does Bitcoin Mining Work?

How to Buy Bitcoins?

How to Sell Bitcoin?

What is Bitcoin?