If you have landed on this page, this means you want to know what bitcoin mining is, how it works, what are the mining machines required, what pool mining is, et al. This guide will help you know everything you wanted to know about Satoshi Nakamoto created Bitcoin mining process and rewards.
Bitcoin’s network of mining is the process involved in creating new bitcoins. It involves solving a computational puzzle as well as maintaining a ledger of BTC transactions. The process of Bitcoins blockchain mining involves solving complex mathematical problems that need high-capacity computational power involving incredibly powerful computers. You can’t solve them by hand. Over the years, Bitcoin miners have become very sophisticated as they have started using complex machinery to accelerate mining operations.
Mining bitcoins is painstaking, costly, and occasionally rewarding. As BTC miners are rewarded with bitcoins from the network, it has a magnetic effect on miners. The entrepreneurial types view bitcoin mining as pennies from heaven, similar to California gold prospectors in 1849.
Bitcoin mining is a process to digitally add transaction records to the blockchain. A BTC blockchain is a publicly distributed ledger that holds the history of every Bitcoin transaction.
Mining bitcoins is essentially a record-keeping process, which can be executed through immense computing power. For ensuring the payment network is secure and trustworthy, Bitcoin’s decentralized peer-to-peer network is contributed by every BTC miner across the globe.
Bitcoin is mined by Bitcoin miners, who use the immense computing power of mining computers and electricity to solve complex mathematical problems. As the competition among the miners increases, the Bitcoin mining difficulty target of solving the mathematical problem also increases.
BTC mining is a record-keeping process that requires the miners to verify transactions of the legitimacy of Bitcoin. To ensure that the payment network is trustworthy and secure, Bitcoin miners around the world contribute to the decentralized peer-to-peer network of Bitcoin.
When the powerful mining computer finds a solution and the transaction is verified, the block of information is confirmed and the transaction is added as the next block link in the blockchain.
There are twofold results of Bitcoin mining:
1When ASIC machines or powerful computers solve the complex mathematical problems of the BTC network, new Bitcoins are produced.
2. Bitcoin miners make the network secure and trustworthy through verification of the transaction information.
A BTC transaction is called to take place when someone sends bitcoin to another. In the case of fiat currency transactions (whether made online, point-of-sale systems, or in-store), all transactions are documented by physical receipts, point-of-sale systems, and banks.
In the case of bitcoin mining, the miners clump transactions together in blocks and add them to a public record known as a blockchain. It is the nodes that maintain records of the blocks so that they can be verified in the future.
When miners add a new transaction block to the blockchain, it is their duty to check whether the transactions are accurate. This process of checking is very important because it makes sure that the BTC is not duplicated, also called “double spending”.
Let’s make it easier for you to understand. When a fiat currency is printed, there is always an issue of counterfeiting (especially by printing fake notes). However, when you spend a fiat currency note in a store, you get some product or service by handing over the note to the hands of the clerk.
When it comes to digital currency, there is a chance that the person spending bitcoin has actually made a copy of the same. He/she is using the copy of bitcoin to purchase something from a seller and holding the original BTC. The verification of transactions by the miners ensures that there is no double-spending in the system, making the network secure and trustworthy.
The miner who first finds the solution and verifies the transaction receives a reward (in the form of free Bitcoins) from the network.
It usually takes 10 minutes on average to add a block. The reward is halved after the creation of every 210,000 blocks, which takes around 4 years. The latest reward halving took place on May 11, 2020.
The algorithm of Blockchain says that there will be 33 reward halvings in the entire lifecycle of Bitcoin mining. Till now 3 halvings have taken place after getting started on January 3, 2009. The rewards and halving dates are given below:
This halving process will continue 30-times more after every 4-years until the block reward tends to be near-zero (essentially below 1 satoshi, the smallest unit of Bitcoin).
Yes, Bitcoin mining is still profitable and that’s why the mining community is still growing. This points to the fact that mining investment is still lucrative and attractive.
Mining Bitcoin used to be very easy and extremely profitable. This made many miners join the network. However, with time, it has now become almost impossible for individual miners to operate profitably.
A single miner has to take help of either:
As the mining resources are expensive and the amount of electricity required for the same is also very costly, it is almost impossible for an individual miner to sustain mining operations single-handedly profitably. That’s why more and more miners are joining the mining pools. These mining pools run a large mining operation and generally run their operations from countries where the electricity cost is very low.
For the miners to keep making money, two important aspects are important. While one is the increase in hash rate with an increase in competition among miners, the other is the amount of Bitcoin price increases over time. In the last 8-years, the BTC price has increased by around 33,000% (making the annualized return as over 4,000%).
Bitcoin mining machines, also called rigs, are powerful computers and a set of hardware networks that solve the mathematical problem required for mining a block. These are special hardware based on algorithms for mining the largest cryptocurrency.
If you want to mine Bitcoin, you’ll have to do it competitively. That’s why you should invest in powerful computer equipment such as a GPU (graphics processing unit) or ASIC (Application-Specific Integrated Circuit).
ASIC chips are powerful means that use less electricity and at the same time help in the faster mining of BTCs. These machines are expensive and are capable of solving complex mathematical problems at a very high speed. Suppose, a bitcoin mining rig solves a problem in 14 terahashes per second, it means that the machine attempts 1,012 times for solving a block per second.
ASIC rigs or mining machines should be chosen on the basis of the following factors:
Mining Bitcoins individually is expensive. That’s why it is most suitable for crypto mining firms and corporations, who can invest large amounts of money in capital goods including computing software, machinery, and electricity.
As an individual, you can also mine Bitcoins by joining a reliable and renowned pool mining company. Here, you can invest a small amount of your investible money in pool mining companies to buy a share of pool mining of Bitcoin. Once the company receives a cryptocurrency mining reward, you as an investor receive a fraction of that.
Some of the best Bitcoin mining pools are:
China bans and crackdown on Bitcoin mining rigs have adversely affected the hash rate of mining. Environmental impact and concerns (headlined by the tweets made by Tesla CEO Elon Musk) have made most of the miners shift from coal-based electricity consumption to more environmentally friendly (hydroelectricity) electricity consumption. In fact, most of the BTC mining firms have now relocated to various parts of America.
Bitcoin wallets help you to receive your Bitcoins. It also enables you to manage and store your Bitcoin addresses. Each address has a public key as well as a matching private key.
There is a unique combination of characters in a public key. It looks something similar to this: 18ukxpD1eqnVjux13ehEz8r4d8py1dSdzw
Wallets work like a bank account number, where you can receive your BTCs from someone if you tell them your public key. Remember that every bitcoin address is public and anyone can find every transaction details that passed through it. However, the private key is secret, which is known to the owner of the wallet only. Always remember the private key otherwise you can lose bitcoins forever.
There are different types of wallets:
Many people put their cryptos on exchanges through which they buy them. Many store bitcoins with the help of their online/software wallets by using the internet. However, the most secure ones are the hardware wallets, which are offline in nature. Hackers and malicious attacks are not possible in the case of hard wallets.
The number of BTC addresses is growing. Here are some relevant data
You can buy and sell Bitcoins legitimately from a cryptocurrency exchange or Bitcoin ATMs (BATMs). In case you are bullish on the future prospects of Bitcoin BTC, Ethereum ETH, Ethereum Classic ETC, Litecoin LTC, and other altcoins, you can buy Monero XMR, Cardano ADA, and other digital currency, Chainlink LINK, Ripple XRP, Binance Coin BNB, Basic Attention Token BAT, Bitcoin Cash BCH, Stellar Lumens XLM, Tron TRX, Tezor XTZ, Cosmos ATOM, DASH DASH, Bitcoin Gold BTG, and others.
After buying, transfer them to hot wallets (including mobile app wallets and software wallets) or cold wallets (including most secure hardware wallets) and hold them for a longer time period for a significant price appreciation. Keep your XRP safe with Ledger Nano S, Trezor One, other Ledger and Trezor models, or other popular ones.
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If you still need assistance, you can refer to the following guides: