What is Bitcoin mining?

What really is Bitcoin mining?

 

Bitcoin mining is the means by which new Bitcoin is brought into circulation, the total of which is to be capped at 21 million BTC. Mining is just doing computational work to secure the transaction block chain. A side effect of mining is creation of new coins and earning additional money by signing on transactions. Bitcoin mining is the processing of transactions in the digital currency system, in which the records of current Bitcoin transactions, known as a blocks, are added to the record of past transactions, known as the block chain. Transaction validation process is called mining. For each block of transactions validated, the successful miner receives bitcoin reward (Bitcoins).

Bitcoin mining is decentralized. Anyone with an internet connection and the proper hardware can participate.

A Bitcoin is defined by the digitally signed record of its transactions, starting with its creation. The block is an encrypted hash proof of work, created in a compute-intensive process. Miners use software that accesses their processing capacity to solve transaction-related algorithms . In return, they are awarded a certain number of Bitcoins per block. The block chain prevents attempts to spend a Bitcoin more than once -- otherwise the digital currency could be counterfeited by copy and paste. The Bitcoin system uses the mining process to generate coins, secure transactions, and publish these transactions.

In bitcoin mining, your computer is calculating blocks and in return the bitcoin protocol gives you some bitcoins. The way Bitcoin works is that instead of having one central authority who secures and controls the money supply (like most governments do for their national currencies), this work is spread out all across the network. Most of the heavy lifting for Bitcoin is done by "miners".

Originally, Bitcoin mining was conducted on the CPUs of individual computers, with more cores and greater speed resulting in more profitability. After that, the system became dominated by multi-graphics card systems, then field-programmable gate arrays (FPGAs) and finally application-specific integrated circuits (ASICs), in the attempt to find more hashes with less electrical power usage.

The way Bitcoin makes sure there is only one block chain is by making blocks really hard to produce. So instead of just being able to make blocks at will, miners have to compute a cryptographic hash of the block that meets certain criteria. Bitcoiners refer to this process as "hashing". A modern GPU can try hundreds of millions of hashes per second, so to be competitive in this race to find hashes miners need specialised hardware, otherwise they will tend to spend more on electricity than they make.

The amount of new bitcoin released with each mined block is called the block reward. The block reward is halved every 210,000 blocks, or roughly every four years. The block reward started at 50 bitcoin in 2009, halved to 25 bitcoin in 2012, and halved again to 12.5 in 2016. This diminishing block reward will result in a total release of bitcoin that approaches 21 million. According to current Bitcoin protocol, 21 million is the cap and no more will be mined after that number has been attained.

Due to this constant escalation, it has become hard for prospective new miners to start. This adjustable difficulty is an intentional mechanism created to prevent inflation. To get around that problem, individuals often work in mining pools. Mining pools are operated by third parties and coordinate groups of miners. By working together in a pool and sharing the payouts among participants, miners can get a steady flow of bitcoin starting the day they activate their miner. One of the best ones we found is called BitClub Network. You can take a free look here: BitClub.

The main operational costs for miners are the hardware and the electricity cost, both for running the miners but also for providing adequate cooling and ventilation.

Bitcoin generally started with individuals and small organizations mining. At that time, start-up could be enabled by a single high-end gaming system. Now, however, larger mining organizations might spend tens of thousands on one high-performance, specialized computer.

How hard is it to mine Bitcoins?

 

The short answer is that it depends on how much effort is being put into mining across the network. Following the protocol laid out in the software, the Bitcoin network automatically adjusts the difficulty of the mining every 2016 blocks, or roughly every two weeks. It adjusts itself with the aim of keeping the rate of block discovery constant. This means that if more computational power is employed in mining, then the difficulty will adjust upwards to make the mining harder. And if computational power is taken off of the network, the opposite happens (difficulty adjusts downward to make mining easier).

The higher the difficulty level, the less profitable mining is for miners. Thus, the more people mining, the less profitable mining is for each participant. The total payout depends on the price of Bitcoin, the block reward, and the size of the transaction fees, but the more people mining, the smaller the slice of that pie each person gets.

Here is a great short video explanation of what Bitcoin mining is:

Why is it called mining?

 

In the original analogy, people who performed this essential work were compared to gold miners digging the gold out of the ground so that everyone could use it. But in reality, Bitcoin "miners" are just running computer programs on very specialized hardware that automates the process of securing the network. This software collects transactions from the network, validates them, and doesn't allow conflicting ones. It puts them into large bundles called blocks. The software computes cryptographic hashes over and over until if finds one "good enough to count" and then submits the block to the network, adding it to the block chain and earning a reward in return.

Source:

eoscryptocurrency.com