Do you want to know what is Bitcoin mining, how mining works, and how it is used in Bitcoin? Are you wondering if you can mine Bitcoins at home with your computer or smartphone? If yes then this article will definitely help you. Everything that you need to know about Bitcoin Mining is explained here for complete beginners.
What Is Bitcoin?
Bitcoin is an open-source peer-to-peer decentralized digital currency that was first introduced in 2009 by Satoshi Nakamoto. No one controls it and everyone takes part in its network. The total number of Bitcoins that can be mined is 21 million, out of which 17 million have already been mined till now. It uses cryptography for security i.e. no one can spend or transfer money from someone else’s account without their permission. If you are interested in bitcoin investment, then you need to visit Bitcoin Revolution for keeping yourself up to date with bitcoin trading.
It also makes use of blockchain technology to record every transaction so that everyone involved remains honest and no fraud is possible at all due to the architecture of blockchain itself. However, this key feature also makes Bitcoin prone to cyberattacks like hacking, phishing, etc.
Currently, 1 Bitcoin (BTC) costs around $64000, which is just a little over 10 months old price. Bitcoin has been around since 2009 but it gained popularity in 2013 with an exponential increase in its prices.
As you can see, Bitcoin’s value increased by 200 times within the past 5 years and it may increase further after proper regulation and government acceptance (it is banned or restricted in some countries due to legal reasons).
How Does Bitcoin Mining Work?
Mining of Bitcoin was possible for everyone at the initial stage but now it has become difficult with the huge computational power needed to mine 1 BTC. There are specialized mining companies that work on such high-powered computers that they can solve complex mathematical problems required for solving blocks. They are provided with all necessary facilities like software, hardware, etc., by the company itself.
A miner solves these complex problems using his computer’s processing power and in return gets rewarded with 12.5 BTC (at present) for each block he successfully mines. The process is called Bitcoin Mining and it is used for creating new Bitcoins as well as confirming transactions that happen on its network.
Confirmed transactions are included in the blockchain which is nothing but a public ledger where every transaction happening on the network is recorded so that no one can cheat or deceive others by spending their coins twice because blockchain prevents this double-spending problem. One more interesting fact about blockchain technology is that everyone has a complete record of all transactions happening on the network at any given time.
This ensures transparency and trust among all the users while making it almost impossible to carry out illegal activities like money laundering or cyberattacks. The process of mining might seem profitable but we can’t expect a good return over investment (ROI) in the future due to an increase in network difficulty and falling bitcoin prices.
So, what you can do is join a Bitcoin Mining Pool with your computers so that you can get rewarded on a consistent basis even if one block takes years to mine. We will discuss Mining Pools later in this article.
How are Bitcoins Mined?
Bitcoin is mined by using the Proof-of-Work algorithm which requires computational power from miners. It also includes a lot of trial and error before solving complex cryptographic puzzles required for block generation.
As more miners take part, the hash rate (computational power) of the network increases and it takes less time to solve these difficult problems. This ensures that everyone gets a fair share of bitcoins without paying too much for GPU or ASIC mining hardware which is required if you want to solo mine.
Difficulty Factor: Difficulty factor is defined as how much faster the current block generation time is with respect to the first block ever mined which was found in 2009. The difficulty factor will increase as more computational power is added to the network by solving complex mathematical calculations required for mathematical puzzles while processing transactions on Bitcoin’s blockchain.
Hash Rate: Hash rate denotes the speed at which blocks are being mined. It also indicates the total computational power used by all miners. As more miners join the network, the hash rate increases which ensures less time is required for each block to be mined resulting in less consumption of electricity.
Reward: If you are thinking that mining bitcoins is all about solving complex equations then let me tell you it’s not entirely true because finding blocks also rewards miners with 12.5 BTC. This number was 50 BTC till 2014 and will halve every 4 years i.e., the next threshold will reduce to 6.25 BTC in 2020 and so on until the year 2142 when rewards will become zero but there would be total of 21 million bitcoins ever created by then which means these coins can’t be further divided.
