Home Finance What is Bitcoin Mining and How Does it Work?

What is Bitcoin Mining and How Does it Work?

by Biljana Denic

Everyone knows that Bitcoin and altcoins are not physical forms of money. People have a bit of a hard time wrapping their heads around the idea of digital currencies. Who controls them? Do banks issue them?

Cryptocurrencies and Bitcoin only exist in the blockchain, but they’re real. Unlike physical money, they are controlled via a peer-to-peer network. Of course, they don’t just appear out of thin air. Bitcoin miners are responsible for “creating” new Bitcoins by mining blocks on the blockchain that essentially unlock new Bitcoins.

That’s the process called mining which has been publicly criticized and praised.

The Technical Details

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Mining is a process that literally mines (extracts) Bitcoins when users solve complex mathematical equations. To do this, they use computers to complete blocks of verified transactions that are then added to the blockchain.

Miners are paid transaction fees for completing those hashing puzzles. The whole Bitcoin mining community is what drives the cryptocurrency forward. Thanks to the peer-to-peer network, Bitcoin can be earned by just about anyone. However, before you start mining, you need to get your hands on specific equipment.

Under specific equipment, we mean computers. There are two types of PCs that can mine Bitcoin:

  • GPU (graphics processing unit)-heavy computers
  • ASIC (application-specific integrated circuit) that sets up a mining rig

Mining rigs usually incorporate several GPUs that give them a lot more power for mining. However, they are more expensive, and to really make a dent, you’ll need a mining farm which is illegal in most parts of the world. Still, if you can get your hands on a few ASIC miners, you can mine a pretty solid amount of BTC.

For those that don’t have access to ASIC miners, a good mining GPU will do nicely. You won’t be earning that much as with mining rigs, but still, it’s a nice introduction to the world of Bitcoin mining.

Of course, you don’t need to mine to get your hands on Bitcoin. You can use top online trading sites such as the YuanPayGroup to simply exchange fiat money for it and step forward into the digital era of finance. There are plenty of automated exchange platforms that don’t require a lot of know-how to complete the transactions and store your Bitcoins.

All about Bitcoin Mining and what actually Bitcoin Mining is doing?

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Bitcoin and what’s its use is the thing we keep on asking every day. Bitcoin mining can be seen through different aspects and has its own function in everyday life. Some of them are

  • Security
  • Confirming of transaction
  • New Bitcoin and it’s insurance.

Bitcoin circulation and Mining

Bitcoin mining has taken growth in a few years, and miners, in other words, basically came from “minting” currency. Around 18.5 million bitcoins are circulated till November 2020, which is a huge number. This all came into existence because of Satoshi Nakamoto, who is the founder of the very first bitcoin. Every single bitcoin nowadays in the market exists because of these miners. Satoshi Nakamoto was the first miner of bitcoin. As a result, bitcoin can be used as a network and will exist like it but can never be overwritten by additional bitcoin.

Because of this, a time will come when bitcoin mining will come to an end, and all the bitcoins will be wrapped at around 21 million. This will happen due to a reduction in the rate of each bitcoin every time it gets circulated and will be over till 2140. This also does not signify that mining will cease at that time. Verification can be done at that time also, and miners will be paid to verify the transaction and in keeping the bitcoin network in circulation in those times also.

How to Win a Block

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There are two factors that will allow you to earn Bitcoins via mining. The first one is effort, and the second is luck. Each transaction verified weighs around 1 MB. However, in order to earn a reward for it, you have to be the first miner that solves the math equation behind the blocks, which is known as proof of work.

The complex math equation is not that complex. You won’t need a pen and paper to solve the math equation – it’s literally guesswork, and all the work is done by the computer.

If you want to learn how your computer might perform, there are plenty of online hash calculators that can help.

Those who want to know how much they can earn need to know that the Bitcoin mining rewards are reduced in half every four years or so. This is called Bitcoin halving and is done every time 210,000 blocks are mined. The current reward is 6.25 BTC per block, but that is set to change in the coming years. The last halving took place in May 2020, when 630,000 blocks were mined.

Do I need to start mining Bitcoins?

In starting when there was difficulty level one in 2009, it was like as long as you have a computer at home, there is difficulty in starting Bitcoin mining. All you have to learn is how to start it and what is the history of bitcoin in view to ensure the smooth functioning of blockchain with time. But till 2019, the difficulty level has reached 13 trillion, which is more difficult to compute. The difficulty level increases with the increase in applied power to solve the bitcoin network. And this doesn’t stop here; when mining of bitcoin is done, it is designed to evaluate 2,016 blocks or every two weeks on an average. This is because the bitcoin network produces one block every 10 minutes. This ensures smoothness of bitcoin if one million rigs are competing in solving the difficult problem, the solution can be reached at a faster rate, and when the power increases for solving the problem, the level of difficulty of mining also gets increased so as to keep the production of blocks at a stable rate.

Conclusion

Mining in Bitcoin can be done, but you need to understand the difficulty level as the blockchain changes every minute. This also makes it difficult to hack bitcoin. It is secure and growing at a very fast pace. People live this, and some criticize it too. It all depends on your scenario, whether you want to give time to bitcoin mining or not.

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