Mining CryptoCurrency: Defined
Mining CryptoCurrency is defined as the process of using computer power to solve a complex math problem.
A computer does this by reviewing and verifying information, and create a new block so the information can be added to the blockchain.
Imagine the blockchain as a digital book of records.
Just like paper pages, these digital pages can only store a limited amount of information.
So new pages are created regularly to store more information.
Those pages are blocks in the blockchain.
To keep the blockchain network running smoothly, only one block can be created at a time.
Proof of work is the mining process of controlling how blocks are created and how data is added to a block. Here’s how proof of work works:
- To be eligible to participate, users are required to have a computer that can run the blockchain program.
- These people are known as “miners”.
Miners compete with their computers to solve a math problem presented by the crypto system. - The first miner to solve this problem creates a new block.
Information is reviewed and verified as correct then added to the block. - The block is added to the blockchain and this updated copy is distributed to other miners.
This process earns miners a reward in transaction fees paid by each user for their transactions and sometimes brand new, virgin coins.
Miners often purchase very expensive, specially designed computers to increase their chances of solving the math problem first and pay massive electricity bills to power their computers.
With over 1,500 cryptocurrencies and many more being created each month, many new interesting ways of maintaining the blockchain are regularly being explored and discovered.
Also, Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released.
The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle.
Bitcoin Mining:
What is 'Bitcoin Mining' Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released.
Anyone with access to the internet and suitable hardware can participate in mining.
The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle.
The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards.
The rewards, which gives incentive through mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.
(Related: How Does Bitcoin Mining Work?)
BREAKING DOWN 'Bitcoin Mining':
The amount of bitcoin value released with each mined block is called the block reward.
Satoshi Nakamoto, Bitcoin’s creator, set the block reward schedule when he created Bitcoin.
It is one of Bitcoin’s central rules and cannot be changed without agreement between the entire Bitcoin network.
The block reward started at 50 BTC in block #1 and halves every 210,000 blocks.
This means every block up until block #210,000 rewards 50 BTC, while block 210,001 rewards 25.
Since blocks are mined on average every 10 minutes, 144 blocks are mined per day on average.
At 144 blocks per day, 210,000 blocks take on average four years to mine.
This diminishing block reward will result in a total release of bitcoin that approaches 21 million.
How hard are the puzzles involved in mining?
Well, that depends on how much effort is being put into mining across the network.
The difficulty of the mining can be adjusted, and is adjusted by the protocol every 2016 blocks, or roughly every 2 weeks.
The difficulty adjusts itself with the aim of keeping the rate of block discovery constant.
Thus if more computational power is employed in mining, then the difficulty will adjust upwards to make mining harder.
And if computational power is taken off of the network, the opposite happens. The difficulty adjusts downward to make mining easier.
In addition to being the means of generating new bitcoin, bitcoin mining creates the blockchain that verifies bitcoin transactions.
The block reward is gleaned by placing a new block on the blockchain, which acts as an advancing public ledger of verified transaction.
This is an essential function for bitcoin's operation as it enables the currency to be safely and predictably created without the centralized regulation in the form of a bank or federal government.
Blocks must to be a validated by a proof-of-work (Bitcoin uses Hashcash), which can only be obtained by expending a great deal of processing power.
Once a block is obtained a message is broadcast to the mining network and verified by all recipients.
In the earliest days of Bitcoin, mining was done with CPUs from normal desktop computers.
Graphics cards, or graphics processing units (GPUs), are more effective at mining than CPUs and as Bitcoin gained popularity, GPUs became dominant.
Eventually, hardware known as an ASIC, which stands for Application-Specific Integrated Circuit, was designed specifically for mining bitcoin.
The first ones were released in 2013 and have been improved upon since, with more efficient designs coming to market.
Mining is competitive and today can only be done profitably with the latest ASICs.
When using CPUs, GPUs, or even the older ASICs, the cost of energy consumption is greater than the revenue generated.
Bitcoin Mining in the beginning:
Bitcoins were launched back in 2009.
And although they didn’t quite gain ground back then, they’ve surely compensated for it in recent years.
These days, bitcoins are the most-demanded cryptocurrency in the digital space.
It is possible for people to purchase then trade them off, and it is also possible to mine these provided that specialized software and hardware are invested in.
There was a time when you could only mine bitcoins via your CPU but man’s yearning for more bitcoins for less work and heightening the security aspect led to the creation of new systems, new bitcoin mining hardware, that can deliver a job well done and operate 24/7.
Back when mining was done via CPU, it can take years before you earn a single cryptocoin. In some cases, you might not even earn a return for your efforts.
What followed was the GPU era for cryptocurrencies.
Given that CPUs weren’t exactly doing a great job in helping people mine bitcoins, graphics cards rose to fame especially when found that they are more efficient bitcoin mining hardware.
Aside from their ability to mine cryptocoins faster, GPUs also relied on less power, which means reduced electrical expenses for the user.
And then you have the FPGAs.
These are dedicated bitcoin mining hardware.
Compared to their predecessors, the GPUs, these didn’t speed up the mining process entirely but they compensated for it through ease of use not to mention boosted efficiency.
The thing about mining hardware is that the more efficient it functions, the more value the mined coins carried as costs are offset or outweighed by potential gains.
What is ASIC is bitcoin mining hardware:
Although you can’t repurpose these chips to accommodate other tasks, the benefit is in its enhanced mining speed and ultra-low power requirement. Case in point, these chips are the most efficient bitcoin mining hardware available today making them worth the expense. Right now, bitcoin experts haven’t found any other hardware that can surpass ASICs.
ASICs are known for their high hashing power. In the bitcoin world, there are transactions made on the bitcoin trading floor. These transactions are recorded and are referred to as blocks. Just like any other puzzle, a miner must overcome these blocks to get rewards – bitcoins. To overcome these blocks, you need your bitcoin mining hardware to perform quick numerical calculations – the hash. You have a target, a 256-bit figure and your hash should be lower than this to generate bitcoins.
So there you have it. If you are interested in mining bitcoins, invest in a highly-reliable and ultra-efficient ASIC. There are different types to choose from, each with its pros, cons, and price point. Multiple reviews are accessible on the Web and it would also be a good idea to check forums and communities for more information on the best bitcoin mining hardware given your expertise and budget.
Remember that efficiency is necessary as reducing your operational costs will increase your overall earnings. The less you spend on power, the more profitable your venture will be.
