Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground. What is Proof of Work? Dec 15, · The truth is, bitcoin “mining” is a misnomer. When gold is mined, nothing is achieved beyond the discovery of new gold. When bitcoins are mined, however, a valuable service is provided to the Bitcoin network: decentralized transaction recordation and validation. Dec 04, · How Bitcoins Are Mined The bitcoin creation process mimics the mining of mainstream precious commodities i.e. gold, silver, etc. The goal was to ensure that the mining process was steady to avoid currency influxes that would harm the overall value of the digital currency. To mine a bitcoin, you have to solve a complex mathematical puzzle.
Why must bitcoin be minedWhat is Bitcoin Mining and How Does it Work? ( Updated)
When they are not, other clients will not accept the block they mined when they send it to the network. This is the least difficult one to understand. The Bitcoin protocol sets the difficulty of the mining problem so that averagely every 10 minutes a new block can be found by some miner.
This way, a transaction takes 10 minutes to be confirmed on average. However, after a transaction has been included in a block, it still is not irreversible.
This is not easy to understand, but when a miners try to mine a new block, they include in that block the number and the ID of the previous one. So let's say someone mined block , which follows number It can happen that someone else didn't notice that someone found a valid block to follow on 99 and makes a valid number itself as well, let's call it '. In this case, most clients will only accept the first block they received.
But it can happen that another miner received ' first and will find a block following on ' and not on Then we have following situation:.
When clients notice such a situation, they will always choose the longest existing chain that only consists of block they think are valid. This means that block will be discarded and that ' and ' or now the two last block of the main chain. This means that a transaction that was confirmed by block is now possibly no longer confirmed.
Luckily, the miners who found block ' or ' probably also knew of the transaction and most probably they also included it in one of those blocks. But it can happen that they did not and so a transaction can be undone.
For this reason, most clients and merchants require a transaction to be confirmed by at least 6 blocks. This means it must be included in a block that has at least 5 blocks after it. The fact that a transaction will be able to be considered confirmed after averagely 1 hour, makes it a stable situation. It happens rarely that transactions confirmed for more than 1 hour will ever be reversed again.
The previous part about stability already included some security aspects of mining. It is clear that miners make the Bitcoin block chain trustworthy. When a transaction is included in a block and 5 or more other blocks have passed, you can be sure it is irreversible and safe to accept it as a payment.
It is also clear that the safety and security of Bitcoin as a payment system is in the hands of the miners and that every time one of them solves a block, he has the power to decide what transactions he accepted to the block chain. Mostly, all miners are fair and they will include as much valid transactions as possible. Whenever a miner is not fair and it selectively excludes some transactions, some other miner will likely include it in the next block.
There is however one flaw. When a miner has more computation power than all other miners combined , it can always create new blocks at a faster rate than the others.
This gives him much power over the block chain, and that is to be avoided at all cost. But this is a security flaw, what has this to do with why miners should mine? Currently, to own hardware capable of performing such an attack would be so enormously expensive that it is economically unfeasible to do, if not completely impossible.
So, every miner who contributes his power to the network ensures that only fair miners will find blocks and that the network will be safe for people to trust upon. In order to prevent double spending, signed transactions need to be time-stamped in a well defined order so that clients can determine the validity of each transaction; i.
Rather than have a single centralized trusted authority, Bitcoin distributes this function across the network. But how to decide who to trust to do this? The answer is to give the authority to whomever demonstrates the most computing power. Since a demonstration of computing power cannot be reliably faked, unlike other measures of individual identity , people can pool their resources to earn the right to timestamp transactions.
As long as more computing power is in the hands of non-malicious users, than malicious ones, no malicious user or collection of users will be able to subvert the timestamping function. Basically, the DB must be stored by a distributed network of honest nodes, and shared in the P2P network.
However, we need a way for single nodes to be able to verify if a block isn't forged. One needs to pick the correct nonce for the block hash to follow the criteria, and it takes time to find a working nonce. On the other hand, verifying a hash is a quick job. Now, of course, we need a way to "legitimately" generate the nonce -- there's no central authority handing out nonces. Add to this the fact that elevated computer performance demands high power and the costs of mining can easily balloon out of proportion in comparison to the bitcoins you might generate.
More than that, there is the issue of security and digital security is costly. Remember that bitcoins are digital, and anything digital is prone to hacking. If you mine and do not take the necessary precautions, you may gift a hacker your hard earned coins. To efficiently mine BTC, many people choose the rig option which is somewhat more feasible. In this arrangement, you source for many average computers and link them together to combine their computing power.
Those who are all-in in the mining business look for a location where the costs are more conducive. Once a conducive environment is created, they then assemble powerful supercomputers which can crunch numbers quickly and efficiently. Since many people cannot afford the outlay of such a venture, a more popular approach has been the combining of computing power in pools.
In this manner, stakeholders increase their chances of earning the cryptocurrency given a well-defined arrangement of sharing the proceeds. Before you get into mining, consider your financial position and scalability. Factor in that at some future point, there will be no more coins to mine in addition to the increasing difficulty of solving the puzzles that birth the coins.
Conduct a comprehensive cost-benefit analysis, or you might be left holding the short end of the stick. We will focus primarily on Bitcoin throughout, we'll use "Bitcoin" when referring to the network or the cryptocurrency as a concept, and "bitcoin" when we're referring to a quantity of individual tokens.
The primary draw for many mining is the prospect of being rewarded with Bitcoin. That said, you certainly don't have to be a miner to own cryptocurrency tokens. An example of a crypto blog platform is Steemit , which is kind of like Medium except that users can reward bloggers by paying them in a proprietary cryptocurrency called STEEM.
The Bitcoin reward that miners receive is an incentive that motivates people to assist in the primary purpose of mining: to legitimize and monitor Bitcoin transactions, ensuring their validity. Because these responsibilities are spread among many users all over the world, Bitcoin is a "decentralized" cryptocurrency, or one that does not rely on any central authority like a central bank or government to oversee its regulation.
Miners are getting paid for their work as auditors. They are doing the work of verifying the legitimacy of Bitcoin transactions. By verifying transactions, miners are helping to prevent the " double-spending problem. Double spending is a scenario in which a bitcoin owner illicitly spends the same bitcoin twice.
While there is the possibility of counterfeit cash being made, it is not exactly the same as literally spending the same dollar twice. If you were to try to spend both the real bill and the fake one, someone that took the trouble of looking at both of the bills' serial numbers would see that they were the same number, and thus one of them had to be false.
What a Bitcoin miner does is analogous to that—they check transactions to make sure that users have not illegitimately tried to spend the same bitcoin twice. This isn't a perfect analogy—we'll explain in more detail below. Once miners have verified 1 MB megabyte worth of bitcoin transactions , known as a "block," those miners are eligible to be rewarded with a quantity of bitcoin more about the bitcoin reward below as well.
The 1 MB limit was set by Satoshi Nakamoto, and is a matter of controversy, as some miners believe the block size should be increased to accommodate more data, which would effectively mean that the bitcoin network could process and verify transactions more quickly. It depends on how much data the transactions take up. That is correct. To earn bitcoins, you need to meet two conditions.
One is a matter of effort; one is a matter of luck. This is the easy part. This process is also known as proof of work. The good news: No advanced math or computation is involved. You may have heard that miners are solving difficult mathematical problems—that's not exactly true. It's basically guesswork. The bad news: It's guesswork, but with the total number of possible guesses for each of these problems being on the order of trillions, it's incredibly arduous work.
In order to solve a problem first, miners need a lot of computing power. That is a great many hashes. If you want to estimate how much bitcoin you could mine with your mining rig's hash rate, the site Cryptocompare offers a helpful calculator.
In addition to lining the pockets of miners and supporting the bitcoin ecosystem, mining serves another vital purpose: It is the only way to release new cryptocurrency into circulation. In other words, miners are basically "minting" currency. For example, as of Nov. In the absence of miners, Bitcoin as a network would still exist and be usable, but there would never be any additional bitcoin. There will eventually come a time when Bitcoin mining ends; per the Bitcoin Protocol, the total number of bitcoins will be capped at 21 million.
This does not mean that transactions will cease to be verified. Miners will continue to verify transactions and will be paid in fees for doing so in order to keep the integrity of Bitcoin's network. Aside from the short-term Bitcoin payoff, being a coin miner can give you "voting" power when changes are proposed in the Bitcoin network protocol. The rewards for bitcoin mining are reduced by half every four years. When bitcoin was first mined in , mining one block would earn you 50 BTC.
In , this was halved to 25 BTC. By , this was halved again to If you want to keep track of precisely when these halvings will occur, you can consult the Bitcoin Clock , which updates this information in real-time.
Interestingly, the market price of bitcoin has, throughout its history, tended to correspond closely to the reduction of new coins entered into circulation.
This lowering inflation rate increased scarcity and historically the price has risen with it. Although early on in Bitcoin's history individuals may have been able to compete for blocks with a regular at-home computer, this is no longer the case. The reason for this is that the difficulty of mining Bitcoin changes over time.
In order to ensure the smooth functioning of the blockchain and its ability to process and verify transactions, the Bitcoin network aims to have one block produced every 10 minutes or so. However, if there are one million mining rigs competing to solve the hash problem, they'll likely reach a solution faster than a scenario in which 10 mining rigs are working on the same problem.
For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining every 2, blocks, or roughly every two weeks. When there is more computing power collectively working to mine for Bitcoin, the difficulty level of mining increases in order to keep block production at a stable rate. Less computing power means the difficulty level decreases.
To get a sense of just how much computing power is involved, when Bitcoin launched in the initial difficulty level was one. As of Nov. All of this is to say that, in order to mine competitively, miners must now invest in powerful computer equipment like a GPU graphics processing unit or, more realistically, an application-specific integrated circuit ASIC.
The photo below is a makeshift, home-made mining machine. The graphics cards are those rectangular blocks with whirring fans. Note the sandwich twist-ties holding the graphics cards to the metal pole. This is probably not the most efficient way to mine, and as you can guess, many miners are in it as much for the fun and challenge as for the money.
The ins and outs of bitcoin mining can be difficult to understand as is.