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Bitcoin mining is a term that everyone in the cryptocurrency and even many strangers are familiar with. This is a process performed by high-powered computers (also known as nodes), which solve complicated computational mathematical problems.
Although distinct, there are some similarities between the extraction of bitcoins and the actual extraction of precious metals such as gold, for example. Both processes are made with the intention of earning a prize.
In addition, bitcoins actually exist in the bitcoin protocol but have not yet been highlighted – just as gold exists in the ground but has not yet been extracted.
But the goal of bitcoin mining is, however, twofold. For once, when the aforementioned high-powered computer or any other type of data mining hardware successfully solves the complex mathematical problem on the Bitcoin network, they produce a new bitcoin.
On the other hand, by solving mathematical computational problems, bitcoin miners are effectively securing the payment network through the proof-of-work consent algorithm.
Why is it necessary to extract Bitcoin?
To break down the bitcoin mining, there are some important considerations that must be taken into consideration.
Consumers tend to trust different types of printed fiat currencies because they are supported by central banks. In the United States, for example, this is the Federal Reserve. This is also true for digital payments made with fiat currencies.
Bitcoin, however, is not regulated by any central authority. It can be said that it is "supported" by computing power, which protects the network. This vast network of computers and data mining hardware records transactions and ensures they are accurate.
Unlike central authorities, however, bitcoin miners are widespread throughout the world and record transactional information on a public ledger available to anyone. This ledger can be viewed using a block explorer and there are many different websites that provide this service.
In other words, bitcoin mining is necessary for two different reasons: first, you need to create new bitcoins and secondly, you need to confirm transactional information. So, in theory, if you do not want to buy Bitcoin, you can earn through mining. Regardless of whether it is effective for you as an individual miner, however, it is a different story.
How does Bitcoin Mining work?
In order for a bitcoin miner to get lockouts, there are two conditions that must be met. Firstly, the miner must confirm a certain amount of transactions and the second, which is the most difficult part, solve a complex computational mathematical problem.
In other words, if possible, every miner is competing with all the others to get a 64-digit hexadecimal number that is called a "hash" that is less than or equal to the hash that is targeted. In other words, the computer will spit several hashes at a certain speed per second, guessing all the possible 64-digit numbers until they reach the correct solution.
Therefore, computational power is essential: the more powerful your mining equipment is, the higher the hash rate per second you could reach. This is why Bitcoin mining hardware is particularly important. Naturally, the cost of mining would be based on operating costs such as electricity, Internet connection, hardware maintenance, and so on.
This is the main reason why bitcoin miners started using machines designed specifically for cryptocurrency mining in 2013. These are called integrated circuits specific to ASIC application or extraction, in short. ASIC mining devices can cost a lot of money but are more efficient than traditional computers.
There are some important things to consider when it comes to BTC mining. These are some of the components of his pillar, so to speak.
- blocks
One of the things to know in the world of Bitcoin mining are the blocks. Transaction data is recorded in called files blocks. Think of it as a page from your city's notebook. The blocks are organized in a chain in chronological order – therefore, blockchain. The new transactions, as confirmed by the miners, enter new blocks, each new block is added to the end of the chain. This is why blockchain is also referred to as a block record.
- Block Rewards
Is Bitcoin mining profitable? This is probably the most frequent question. Unfortunately, there is no answer. Blocking premiums are what miners compete for. Other cryptocurrencies like Bitcoin Cash, for example, also have their own block premiums that differ from those of Bitcoin.
In the beginning, every single bitcoin block prize was worth 50 BTCs. However, the protocol works in a way that the block's reward is halved after 210,000 blocks have been discovered. This takes about four years to complete. As of July 9, 2016, the reward for the discovery of a block is 12.5 BTC.
So the Bitcoin extraction is profitable? It depends. You should calculate the current block premium based on current prices and compare it with the cost of mining, which varies from miner to miner.
It is worth noting that the reward for successful Bitcoin miners will fall once again in May 2020 and will decrease to 6.25 BTC per block from the current 12.5.
- Hash Rate
To put it with the most basic terms, the hash rate represents the speed at which bitcoin mining hardware can guess the correct hash. Therefore, the faster the hash rate, the greater the chances of discovering the new block you have. The extraction of BTC has become highly competitive and, as such, it is necessary to consider the possibility of obtaining powerful bitcoin mining hardware. The individual miners, on the other hand, can exploit cloud mining or extract a coin with less difficulty, but we'll talk later.
- Difficulty
The difficulty of bitcoin extraction is regulated frequently in order to maintain an average time of about 10 minutes to process a block. The rate is recalculated every 2,016 blocks.
In case you wonder why ten minutes – it's because bitcoin developers have decided that this is the time it takes for a steady and declining flow of new coin production.
What is a pool of mines
When it comes to cryptocurrency mining, a mining pool is made up of the combined resources of miners who share their overall computational power on a network in order to split the reward equally based on the amount of work that helped uncover a new block .
A "quota" will be assigned to each member of the mining pool who can present a valid partial proof of his work. Mining pools have become popular as the difficulty of bitcoin mining has increased over time and when it became clear that individual miners could no longer compete with larger pools and large-scale mining operations.
What is Cloud Mining
Cloud mining, on the other hand, is what allows individual miners to participate in the process without having to purchase particularly expensive bitcoin hardware.
If you want to participate in BTC mining but do not want to spend time and resources to get powerful machines, you can use the shared processing power provided by remote data centers. The only thing you need is a home computer. In general, there are three types of cloud mining that you can take advantage of. These include:
- Hosted Mining
You can rent a mining machine that is hosted by the provider.
- Virtual Hosted Mining
This is a method that requires the creation of a virtual private server and, subsequently, the installation of its own mining software.
- Lease Hash Power
Cloud mining also allows you to rent a certain amount of hash energy without the best bitcoin mining hardware. This is probably the most popular method of all. Most providers offer complete calculators that you can take advantage of to determine your current profitability based on the resources you are ready to spend.
However, it is important to pay close attention when it comes to cloud mining as there are fraudulent service providers. It is essential to have an adequate and thorough due diligence, especially if you intend to grant hash power. One of the biggest Bitcoin mining companies in the cloud is Genesis Mining.
Energy consumption: things to keep in mind
The mining bitcoin is intentionally designed to be energivorous. The computational power needed to solve the complex mathematical problems mentioned above requires a lot of energy to feed specialized mining hardware.
On the flip side, it requires even more resources to attack the network than to defend it, making Bitcoin the safest blockchain today.
In fact, there is a whole pseudo-environmentalist brigade that aims to make ordinary users believe that the extraction of Bitcoin would somehow be the death of the planet. Many of their arguments revolve around the fact that large data centers used to perform mathematical calculations use an enormous amount of electricity. However, Bitcoinist recently he has outlined three reasons why this rhetoric makes no sense.
According to the clean energy researcher Katrina Kelly-Pitou, the entire debate on the total consumption of electricity by bitcoin extraction plants is headed in the wrong direction. Research emphasizes that electricity consumption can increase while, at the same time, having a minimal impact on the environment. This is because the structures gradually start to use more efficient and renewable energy sources. This not only makes mining more profitable but also reduces the impact on the environment. The researcher also outlined that banks use triple electricity compared to the Bitcoin network.
Furthermore, a new report concluded that 80 percent of Bitcoin's mining operations are powered by renewable energy. This is not surprising since miners are naturally encouraged to look for cheaper and cleaner energy sources, many of which are renewable as hydropower (eg Iceland).
If you're worried that Bitcoin consumes too much energy, you should think twice before turning on the Christmas lights this year. That's right – the lights that American consumers use alone to decorate their homes for the occasion make up a whopping 6.63 billion kilowatt-hour of electricity consumption each year. This is more than the whole national energy consumption of many developing countries every year. For example, both Ethiopia and El Salvador consumed less electricity in the year.
However, if you decide to install a rig in your garage, you can definitely expect a more expensive electricity bill next month.
The best Bitcoin mining hardware: aspects to consider
There are some key parameters to keep in mind when it comes to choosing the best bitcoin mining hardware. These include:
Naturally, you want to be aware of how much electricity your miner consumes. The lower the number, the better.
As we explained above, the hash rate is essential for bitcoin mining. The bigger this number is, the better the car is, generally.
This measurement takes into account the efficiency of your machine. If this specific number is low, it means that the machine will consume less energy for the same amount of work done by the machine.
There is a range of different devices produced by some of the largest companies in the industry, such as Bitmain Technologies, Canaan Creative, Halong Mining, Innosilicon Technology and others.
What else can you do?
Bitcoin is not the only cryptocurrency that can be extracted. It is worth noting, however, that if you use a specialized cryptocurrency mining hardware, you must check the compatible digital currencies, as some devices only allow you to extract the selected cryptocurrencies. However, apart from Bitcoin, other popular choices include Bitcoin Cash, Monero, Dogecoin, Litecoin and so on.
Conclusion
If you managed to get that far, you should have a general understanding of the basic principles behind bitcoin mining and why it is essential to your network.
At the same time, bitcoin mining is an alternative method of acquiring the digital currency. Of course, if you do not want to invest time and effort in it, not to mention the specialized bitcoin mining hardware design, you can always check our detailed guide on how to buy cryptocurrencies.
We have detailed how to buy Bitcoin with Paypal, credit card, debit card and even with money. We have also covered some of the most popular platforms where you can buy Bitcoins.
Once you've done this, you can move on to our complete Bitcoin wallet guide and determine if you want a web-based solution or an offline hardware solution.
What do you think of the process behind bitcoin mining? Did you do it alone? Do not hesitate to share your thoughts or experiences in the comments below!
