What is Bitcoin Mining?
What is Bitcoin Mining?
In traditional fiat currency systems, money is printed by the government
and released into circulation whenever it is needed. Bitcoins, on the
other hand, aren’t printed, rather they are mined. Computers around the
world ‘mine’ for coins by competing with each other using software that
solves mathematical problems.
Bitcoin is mined by people, and increasingly, businesses using computing
power in a distributed network. It can be transferred electronically and
costs very little in transaction fees. The first groups of people to stake
their claim in Bitcoin mining were cypherpunks, cryptographers,
technically-minded libertarians and multi-talented hackers.
Miners get rewarded in Bitcoins for each new block that they discover and
for every transaction that gets finalized. Bitcoin mining usually involves
two main aspects; these are: confirming transactions to the blockchain
and introducing new Bitcoins to the system.
The blockchain is normally kept in a chronological order to provide the
proof needed to complete transactions. Hence, it makes it extremely
difficult and nearly impossible to undo transactions because it will
require new proof on not just one block, but on all the others.
The network is programmed in such a way that when two blocks (or
pending transactions) are found simultaneously, the entire Bitcoin
network works on the first block they’ve found. It follows a one-block-ata-
time process so that no new block is solved until the penultimate block
has been finalized. Then, whoever solves the block gets rewarded with
Bitcoins.
The process of solving subsequent blocks continues on to the next block,
and it keeps going on and on in circles with a reward for each successful
block that gets finalized.
As the mining population increases in the field, there is a proportionate
increase in the difficulty of finding new blocks. This difficulty is enhanced
because the network is always wanting to ensure that the average time
for miners to find a block is limited to 10 minutes. Hence, there is an
inherent cutthroat competition lingering among the miners because they
only have 10 minutes to finalize their transactions. With this rule actively
in place, no one person can control the blockchain, rather, a series of
miners get to finalize transactions.
Bitcoin Mining Terminology
To begin your journey into Bitcoin mining, you will need to run software
with specialized hardware. We will go into further details about this in
the next few chapters. But first, we are going to explain how Bitcoin
mining works by defining the basic technical terms that are commonly
used in mining. These terms include:
Block:
A block is a group of Bitcoin transactions that are collected during a set
period from current pending transactions. These transactions are usually
entered into an ever-growing list of blocks, also known as the blockchain,
by the miner. It is clearly visible to everyone who is a part of the Bitcoin
network. It is estimated that a new block is created on average every ten
minutes.
Proof of Work Hashing:
This is the function which miners perform to define a new block. It is
usually done to ensure that the Bitcoin blockchain is functioning properly.
Miners compete with each other to solve a cryptographic "puzzle," known
as a hash, by using raw computational power. When a miner correctly
hashes the current block, he successfully solves the "puzzle," thus proving
his investment of work. He is then rewarded with a certain number of
newly-created Bitcoins.
Block Reward:
This refers to the number of newly-created Bitcoins. Bitcoins usually
undergoes a halving process every four years (or every 210,000 blocks). As
first, the number was set to 50, then it was halved to 25 in late-2012, and
12.5 in mid-2016. It is the only way in which new Bitcoins can be created
by miners following the code’s rate and limit. This process is expected to
continue until all Bitcoins are created.
Hashrate:
This is the measure of a miner’s computational power. It is the number of
hashes per the amount of time it took to solve them. The higher a miner’s
relative power is, the more solutions he is likely to find, thus earning
more Bitcoins for himself. The unit of measurement of hashrate was
initially in hash per second H/s), due to the increasing speed of mining
hardware. However, H/s eventually began having prefixes with SI units
which consists of the following:
• Kilohash = KH/s (thousands of H/s), then
• Megahash = MH/s (millions of H/s), then
• Gigahash = GH/s (billions of H/s), then
• Terahash = TH/s (trillions of H/s), and finally
• Petahash = PH/s (quadrillions of H/s).
The increase in hashrate would naturally make one conclude that it would
be much easier and faster for blocks to be found by miners. However, as
earlier pointed out, it takes roughly 10 minutes for new blocks to be
found. It is this difficulty measure which is automatically adjusted every
two weeks that prevent the blocks from being found easily. The difficulty
measure rises and falls accordingly, in response to the total hashrate.
BTC/XBT exchange rate:
This is the current fiat price of Bitcoin. It is highly important for
calculating profitability.
W/xHash/s:
This means Watts per hashrate per second. The mining of Bitcoin takes
into consideration the amount of electricity consumed. Therefore, the
price paid per Watt will greatly influence profitability.
Mining Pool:
A mining pool is a group of miners who come together in agreement to
share block rewards in proportion to their contributed mining power. As a
sole miner, unless you command a tremendous hashrate, you may find it
difficult to solve a block on your own. Aside from that, mining alone is
not always profitable now because of the amount spent on hardware and
electricity.
By joining forces with other miners in a so-called pool, you stand a better
chance of solving a block with the advantage of the pool’s total hashrate
which means earning more profits than when you mine alone. Whenever a
block is solved successfully, the pool rewards each miner according to the
amount of their contributed hashrate (fewer commissions and the likes).
Joining a top mining pool will help you earn Bitcoins even faster.
and released into circulation whenever it is needed. Bitcoins, on the
other hand, aren’t printed, rather they are mined. Computers around the
world ‘mine’ for coins by competing with each other using software that
solves mathematical problems.
Bitcoin is mined by people, and increasingly, businesses using computing
power in a distributed network. It can be transferred electronically and
costs very little in transaction fees. The first groups of people to stake
their claim in Bitcoin mining were cypherpunks, cryptographers,
technically-minded libertarians and multi-talented hackers.
Miners get rewarded in Bitcoins for each new block that they discover and
for every transaction that gets finalized. Bitcoin mining usually involves
two main aspects; these are: confirming transactions to the blockchain
and introducing new Bitcoins to the system.
The blockchain is normally kept in a chronological order to provide the
proof needed to complete transactions. Hence, it makes it extremely
difficult and nearly impossible to undo transactions because it will
require new proof on not just one block, but on all the others.
The network is programmed in such a way that when two blocks (or
pending transactions) are found simultaneously, the entire Bitcoin
network works on the first block they’ve found. It follows a one-block-ata-
time process so that no new block is solved until the penultimate block
has been finalized. Then, whoever solves the block gets rewarded with
Bitcoins.
The process of solving subsequent blocks continues on to the next block,
and it keeps going on and on in circles with a reward for each successful
block that gets finalized.
As the mining population increases in the field, there is a proportionate
increase in the difficulty of finding new blocks. This difficulty is enhanced
because the network is always wanting to ensure that the average time
for miners to find a block is limited to 10 minutes. Hence, there is an
inherent cutthroat competition lingering among the miners because they
only have 10 minutes to finalize their transactions. With this rule actively
in place, no one person can control the blockchain, rather, a series of
miners get to finalize transactions.
Bitcoin Mining Terminology
To begin your journey into Bitcoin mining, you will need to run software
with specialized hardware. We will go into further details about this in
the next few chapters. But first, we are going to explain how Bitcoin
mining works by defining the basic technical terms that are commonly
used in mining. These terms include:
Block:
A block is a group of Bitcoin transactions that are collected during a set
period from current pending transactions. These transactions are usually
entered into an ever-growing list of blocks, also known as the blockchain,
by the miner. It is clearly visible to everyone who is a part of the Bitcoin
network. It is estimated that a new block is created on average every ten
minutes.
Proof of Work Hashing:
This is the function which miners perform to define a new block. It is
usually done to ensure that the Bitcoin blockchain is functioning properly.
Miners compete with each other to solve a cryptographic "puzzle," known
as a hash, by using raw computational power. When a miner correctly
hashes the current block, he successfully solves the "puzzle," thus proving
his investment of work. He is then rewarded with a certain number of
newly-created Bitcoins.
Block Reward:
This refers to the number of newly-created Bitcoins. Bitcoins usually
undergoes a halving process every four years (or every 210,000 blocks). As
first, the number was set to 50, then it was halved to 25 in late-2012, and
12.5 in mid-2016. It is the only way in which new Bitcoins can be created
by miners following the code’s rate and limit. This process is expected to
continue until all Bitcoins are created.
Hashrate:
This is the measure of a miner’s computational power. It is the number of
hashes per the amount of time it took to solve them. The higher a miner’s
relative power is, the more solutions he is likely to find, thus earning
more Bitcoins for himself. The unit of measurement of hashrate was
initially in hash per second H/s), due to the increasing speed of mining
hardware. However, H/s eventually began having prefixes with SI units
which consists of the following:
• Kilohash = KH/s (thousands of H/s), then
• Megahash = MH/s (millions of H/s), then
• Gigahash = GH/s (billions of H/s), then
• Terahash = TH/s (trillions of H/s), and finally
• Petahash = PH/s (quadrillions of H/s).
The increase in hashrate would naturally make one conclude that it would
be much easier and faster for blocks to be found by miners. However, as
earlier pointed out, it takes roughly 10 minutes for new blocks to be
found. It is this difficulty measure which is automatically adjusted every
two weeks that prevent the blocks from being found easily. The difficulty
measure rises and falls accordingly, in response to the total hashrate.
BTC/XBT exchange rate:
This is the current fiat price of Bitcoin. It is highly important for
calculating profitability.
W/xHash/s:
This means Watts per hashrate per second. The mining of Bitcoin takes
into consideration the amount of electricity consumed. Therefore, the
price paid per Watt will greatly influence profitability.
Mining Pool:
A mining pool is a group of miners who come together in agreement to
share block rewards in proportion to their contributed mining power. As a
sole miner, unless you command a tremendous hashrate, you may find it
difficult to solve a block on your own. Aside from that, mining alone is
not always profitable now because of the amount spent on hardware and
electricity.
By joining forces with other miners in a so-called pool, you stand a better
chance of solving a block with the advantage of the pool’s total hashrate
which means earning more profits than when you mine alone. Whenever a
block is solved successfully, the pool rewards each miner according to the
amount of their contributed hashrate (fewer commissions and the likes).
Joining a top mining pool will help you earn Bitcoins even faster.
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