In a group discussion with some friends on Bitcoin and other cryptocurrencies, one of them asked this question: How are bitcoins created or produced? Are they printed like normal paper currencies?’.

We all had a good laugh and then I explained the process.

Bitcoin Mining is simply a process by which transactions are verified. These verified transactions will result in a block being added to the blockchain. It is referred to as the Blockchain because it is a chain of blocks.

It can also be seen as a means by which new Bitcoins are created. When miners confirm transactions, they are rewarded with a certain amount of Bitcoins, thus releasing new coins into the network.

Bitcoin mining is quite a competitive business because new miners are always coming in with new strategies that could displace the old ones.

In the early Bitcoin years, solo mining was the order of the day. Solo mining involves individuals mining Bitcoins using their phones or laptops.

But as mining difficulty rose, miners resolved to what is known as Pool mining. Here, miners pool computational power together to mine on the Bitcoin network.

At the end of the day, the block reward received is shared according to the amount of computational power contributed by individual miners.

Nowadays, people indulge in Cloud mining where you purchase an amount of hashrate from mining companies and they will, in turn, pay you mining output after deducting their charges.

When a transaction is sent over the Bitcoin network, the transaction is broadcasted to the nodes which validate it. At this point, the transaction is unconfirmed though valid.

The miners, first of all, gather all the unconfirmed transactions into a block and get to work trying to get the new block into the blockchain.

They use their supercomputers to solve a mathematical equation. This simply means that you have to be the first miner to generate a 64-digit hexadecimal number that is equal or less than the target hash.

A miner needs a lot of computing powers to actually beat other competitors (miners).

The first miner to solve the equation correctly adds the new block to the blockchain and receives a reward.

At this point, the transaction has one confirmation. With time, other blocks are added on top of the initial block thus increasing the number of confirmations for that transaction.

The higher the number of confirmations for a particular transaction, the lower the risk of double-spending that particular Bitcoin.

Bitcoin mining uses the Proof of Work Consensus Mechanism.

The Proof of Work Consensus Mechanism requires a participant node to prove that the work done and submitted by them qualifies them to add a new block to the blockchain.

This mechanism requires high energy consumption and a longer processing time.

Bitcoin mining uses SHA 256 (Secure Hash Algorithm 256) as its mining algorithm.

Mining difficulty on Bitcoin’s network is simply the measure of how hard it is to find a hash below the given target hash.

This mining difficulty changes after every 2016 blocks automatically. At the rate of one block every 10 minutes and an average of 144 blocks per day, 2016 blocks would take exactly two weeks to find.

This adjustment is dependent on several factors like:

  • the global block difficulty (which forces valid blocks to have a hash below this target)

From coinwarz.com, the mining difficulty is at 14.7764T currently (as of 15th Jan. 2020 when this post was written).

In the early years of Bitcoin’s birth {2008–2010}, one could easily mine bitcoins with a simple mobile phone, laptop or desktop computer.

There were stories of early miners who were able to mine thousands of Bitcoins with laptop and desktop computers.

But as mining gained publicity increased, numbers of miners increased, and so did the difficulty involved in mining Bitcoin.

Since mining difficulty increased, miners needed more powerful hardware to accommodate for this change.

This brought about the era of Central Processing Units(CPUs), Graphics Processing Units(GPUs), Field Programmable Gate Arrays(FPGAs), and Application-Specific Integrated Circuits(ASICs) hardware.

But nowadays, most Bitcoin mining is performed on dedicated Bitcoin mining hardware ASICs. The processing speed of one ASIC is greater than the processing speed of 10 supercomputers combined.

Mining tools are relatively expensive although its price varies according to its capacity. They could cost about $500 to tens of thousands.

Examples include Antminer S9, Antminer K4, Dragonmint 16T, etc.

You can use a profitability calculator to determine your estimated cost of return on your mining hardware.

Remember to take electricity costs into account. Most mining hardware appears profitable until electricity costs are accounted for.

Any miner that adds a block to the Bitcoin network receives a block reward in BTC.

This reward halves after 210,000 blocks which( approximately) is every 4 years to maintain the value of Bitcoin. This halving continues until Bitcoin reaches its maximum of 21 million coins sometime around the year 2140.

When Bitcoin was created, the block reward was 50BTC. Sometime in 2012, it halved to 25BTC and then 12.5BTC in 2016.

As of when this post was written(15th Jan. 2020), the reward is still 12.5BTC, counting down to the next halving (6.25BTC) speculated to happen in May 2020.

This implies that every 10 minutes, 12.5 new coins are introduced into the ecosystem.

Note: Presently, the number of Bitcoins that are mined every 10 minutes is 12.5BTC. It cannot be more than 12.5BTC irrespective of the number of miners; whether 100 or 1 million.

But what’s going to happen when all the Bitcoins are mined? Will the Bitcoin network shut down?

Read about that below.

Read more: Bitcoin At A Glance — All You Need To Know About The #1 Cryptocurrency

This article was originally published by medium.com on 2021-01-11 20:03:48. It can be viewed in it’s original state here: Source link .

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