This is How Bitcoin is Mined
Many of you have wondered where do bitcoins come from. Unlike money, Bitcoin isn’t issued by a central government or institution. Bitcoin acts like money, but it’s obtained in a way similar to gold.
Bitcoin are mined by using a special software called ASIC that solves mathematical problems. The cryptocurrency is issued in a fixed number. This way of issuing creates an incentive for more people to mine.
How Many Bitcoins Exist?
Created by the mysterious Satoshi Nakamoto group or person, Bitcoin’s algorithm sets a finite limit to the number of bitcoins that can be mined. The total number of bitcoins that will ever be created is 21 million. At the moment, there are over 12 million that are in circulation, meaning that there are a little less than 9 million bitcoins that can still be mined.
Since its creation in 2009, the number of mined coins has grown tremendously. That’s how the system was conceived, easy to mine at the beginning, and harder as it approaches the 21 million limit. The process is designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. At the current rate of mining, the final bitcoin will be mined in 2140.
How Does Mining Take Place?
People that send bitcoins to each other have their transactions verified, and then the network collects all the transactions made during a set period into a list, called a block. It is the miner’s task to confirm these transactions and put them in a general ledger.
Block chains are practically boxes with a virtual padlock on them and the miners run software to find the key that will unlock said padlock.
The current number of attempts necessary to find the correct key is 1,789,546,951.05, according to Blockchain.info – a top site for latest real-time bitcoin transactions.
What is The Block Reward?
Each time a block is discovered, the miner will receive an award made up of a number of bitcoins, a number which is agreed-upon everyone in the network.
In 2017, the bitcoin reward was of 12.5 and it will halve every four years until the limit is reached. In addition, the miner receives the fees which are paid by the users that send transactions. The fee is to motivate the miner to include the transaction in the block. As the number of new bitcoins rises, the fees will take up a larger part out of the total mining income.
What is Proof of Work?
A proof of work is a piece of data that was very difficult to find so as to satisfy certain requirements. Producing a proof of work can be a random process with low probability, so on average there is required a lot of trial and error to validate the work that has been generated. Bitcoin makes use of the HashCash proof of work.
What is Bitcoin Mining Difficulty?
Mining a block is difficult because the SHA-256 hash of a block’s header must be lower than or equal to the target in order for the block to be accepted by the network.
The hash of the block must start with a specific number of zeros. The hash calculating probability that starts with 0 is very low, therefore to find such a hash many attempts must be made.
The mining network difficulty is the measure of difficulty in producing a new block which is compared to the easiest way it can be produced. This difficulty is recalculated every 2016 blocks to a value such that the pervious 2016 blocks would have been mined in exactly two weeks had they be mined at this difficulty.
As more miners start to participate, the rate of block generation will go up and so will the difficulty to compensate, pushing back down the rate. Blocks that do not meet the required difficulty target will simply be rejected by the network and therefore it will be rendered worthless.
What is pooled mining?
Most mining power today is concentrated in mining pools, big group of miners that gather all their processing power to increase their chances of discovering a block. But pool sites are unregulated and the operator of the pool is not legally obligated to give everyone their share of the block reward.
Is it profitable to mine?
Bitcoin mining takes up a lot of your budget. Expensive specialized hardware (ASIC) is needed to be able to generate blocks. A way around this hefty investment would be to join a mining pool, but as we mentioned above, there is no certainty that you will get a reward.
The other aspect that will cost you money is power consumption. ASICs need a lot of electricity to solve the hash algorithms, and that need will translate into a large electricity bill.