What Are Bitcoins?
Cryptocurrency mining is painstaking, costly and only sporadically rewarding. Nonetheless, mining has a magnetic appeal for many investors interested in cryptocurrency because of the fact that miners are rewarded for their work with crypto tokens.
And if you are technologically inclined, why not do it? However, before you invest the time and equipment, read this explainer to see whether mining is really for you.
We will focus primarily on Bitcoin throughout, we'll use "Bitcoin" when referring to the network or the cryptocurrency as a concept, and "bitcoin" when we're referring to a quantity of individual tokens.
The primary draw for many Bitcoin miners is the prospect of being rewarded with valuable bitcoin tokens. That said, you certainly don't have to be a miner to own cryptocurrency tokens. An example of the latter is Steemit , which is kind of like Medium except that users can reward bloggers by paying them in a proprietary cryptocurrency called STEEM. STEEM can then be traded elsewhere for bitcoin. The bitcoin reward that miners receive is an incentive which motivates people to assist in the primary purpose of mining: to support, legitimize and monitor the Bitcoin network and its blockchain.
Because these responsibilities are spread among many users all over the world, bitcoin is said to be a "decentralized" cryptocurrency, or one that does not rely on a central bank or government to oversee its regulation. Miners are getting paid for their work as auditors. They are doing the work of verifying previous bitcoin transactions.
By verifying transactions, miners are helping to prevent the " double-spending problem. Double spending is a scenario in which a bitcoin owner illicitly spends the same bitcoin twice. If you were to try to spend both the real bill and the fake one, someone that took the trouble of looking at both of the bills' serial numbers would see that they were the same number, and thus one of them had to be false.
What a bitcoin miner does is analogous to that—they check transactions to make sure that users have not illegitimately tried to spend the same bitcoin twice. This isn't a perfect analogy—we'll explain in more detail below. Once a miner has verified 1 MB megabyte worth of bitcoin transactions , known as a "block," that miner is eligible to be rewarded with a quantity of bitcoin more about the bitcoin reward below as well. The 1 MB limit was set by Satoshi Nakamoto, and is a matter of controversy, as some miners believe the block size should be increased to accommodate more data, which would effectively mean that the bitcoin network could process and verify transactions more quickly.
It depends on how much data the transactions take up. To earn bitcoins, you need to meet two conditions. One is a matter of effort; one is a matter of luck. This process is also known as proof of work. The good news: No advanced math or computation is involved.
You may have heard that miners are solving difficult mathematical problems—that's not exactly true. It's basically guesswork. The bad news: It's guesswork, but with the total number of possible guesses for each of these problems being on the order of trillions, it's incredibly arduous work. In order to solve a problem first, miners need a lot of computing power.
If you want to estimate how much bitcoin you could mine with your mining rig's hash rate, the site Cryptocompare offers a helpful calculator. In addition to lining the pockets of miners and supporting the bitcoin ecosystem, mining serves another vital purpose: It is the only way to release new cryptocurrency into circulation.
In other words, miners are basically "minting" currency. For example, as of Nov. In the absence of miners, Bitcoin as a network would still exist and be usable, but there would never be any additional bitcoin. There will eventually come a time when bitcoin mining ends; per the Bitcoin Protocol, the total number of bitcoins will be capped at 21 million.
Aside from the short-term bitcoin payoff, being a coin miner can give you "voting" power when changes are proposed in the Bitcoin network protocol. The rewards for bitcoin mining are halved every four years or so.
When bitcoin was first mined in , mining one block would earn you 50 BTC. In , this was halved to 25 BTC. By , this was halved again to the current level of In about , the reward size will be halved again to 6. As of the time of writing, the reward for completing a block is If you want to keep track of precisely when these halvings will occur, you can consult the Bitcoin Clock , which updates this information in real time. Interestingly, the market price of bitcoin has, throughout its history, tended to correspond closely to the marginal cost of mining a bitcoin.
Although early on in bitcoin's history individuals may have been able to compete for blocks with a regular at-home computer, this is no longer the case. The reason for this is that the difficulty of mining bitcoin changes over time. In order to ensure smooth functioning of the blockchain and its ability to process and verify transaction, the Bitcoin network aims to have one block produced every 10 minutes or so.
However, if there are one million mining rigs competing to solve the hash problem, they'll likely reach a solution faster than a scenario in which 10 mining rigs are working on the same problem.
For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining every 2, blocks, or roughly every two weeks.
When there is more computing power collectively working to mine for bitcoin, the difficulty level of mining increases in order to keep block production at a stable rate. Less computing power means the difficulty level decreases.
To get a sense of just how much computing power is involved, when Bitcoin launched in the initial difficulty level was one. As of Nov. All of this is to say that, in order to mine competitively, miners must now invest in powerful computer equipment like a GPU graphics processing unit or, more realistically, an application-specific integrated circuit ASIC.
The photo below is a makeshift, home-made mining machine. The graphics cards are those rectangular blocks with whirring circles. Note the sandwich twist-ties holding the graphics cards to the metal pole.
This is probably not the most efficient way to mine, and as you can guess, many miners are in it as much for the fun and challenge as for the money. The ins and outs of bitcoin mining can be difficult to understand as is. And there is no limit to how many guesses they get. Let's say I'm thinking of the number There is no "extra credit" for Friend B, even though B's answer was closer to the target answer of Now imagine that I pose the "guess what number I'm thinking of" question, but I'm not asking just three friends, and I'm not thinking of a number between 1 and Rather, I'm asking millions of would-be miners and I'm thinking of a digit hexadecimal number.
Now you see that it's going to be extremely hard to guess the right answer. In Bitcoin terms, simultaneous answers occur frequently, but at the end of the day, there can only be one winning answer. Typically, it is the miner who has done the most work, that s, the one that verifies the most transactions. The losing block then becomes an " orphan block. Miners who successfully solve the hash problem but who haven't verified the most transactions are not rewarded with bitcoin.
The number above has 64 digits. Easy enough to understand so far. As you probably noticed, that number consists not just of numbers, but also letters of the alphabet. Why is that? To understand what these letters are doing in the middle of numbers, let's unpack the word "hexadecimal.
As you know, we use the "decimal" system, which means it is base This, in turn, means that every digit of a multi-digit number has 10 possibilities, zero through nine. In a hexadecimal system, each digit has 16 possibilities.
But our numeric system only offers 10 ways of representing numbers zero through nine. That's why you have to stick letters in, specifically letters a, b, c, d, e and f. If you are mining bitcoin, you do not need to calculate the total value of that digit number the hash.
I repeat: You do not need to calculate the total value of a hash. Remember that ELI5 analogy, where I wrote the number 19 on a piece of paper and put it in a sealed envelope? In bitcoin mining terms, that metaphorical undisclosed number in the envelope is called the target hash. What miners are doing with those huge computers and dozens of cooling fans is guessing at the target hash. A nonce is short for "number only used once," and the nonce is the key to generating these bit hexadecimal numbers I keep talking about.
In Bitcoin mining, a nonce is 32 bits in size—much smaller than the hash, which is bits. In theory, you could achieve the same goal by rolling a sided die 64 times to arrive at random numbers, but why on earth would you want to do that? The screenshot below, taken from the site Blockchain.
You are looking at a summary of everything that happened when block was mined. The nonce that generated the "winning" hash was The target hash is shown on top. The term "Relayed by Antpool" refers to the fact that this particular block was completed by AntPool, one of the more successful mining pools more about mining pools below. As you see here, their contribution to the Bitcoin community is that they confirmed transactions for this block.
If you really want to see all of those transactions for this block, go to this page and scroll down to the heading "Transactions. There is no minimum target, but there is a maximum target set by the Bitcoin Protocol. No target can be greater than this number:. Here are some examples of randomized hashes and the criteria for whether they will lead to success for the miner:.
You'd have to get a fast mining rig, or, more realistically, join a mining pool—a group of coin miners who combine their computing power and split the mined bitcoin. Mining pools are comparable to those Powerball clubs whose members buy lottery tickets en masse and agree to share any winnings.
What is Bitcoin Mining?
Mining is the process by which Bitcoin are. This is because it is a digital or virtual currency. You cannot touch Bitcoin like paper money. Miners are people who are responsible for mining Bitcoin. They run programs on computers.
How Bitcoin Mining Works
As Bitcoin approaches mainstream adoption and recognition, its fundamental security model, characterized as mining, is being put under the spotlight and scrutinized more and more everyday. People are increasingly concerned about and interested in the environmental impact of Bitcoin mining, the security and degree of decentralization of the underlying model, and even the potential impact of a quantum computing breakthrough on the future of Bitcoin and other cryptocurrencies. In order to truly understand these questions and any possible answers , you need to have a fundamental understanding Bitcoin mining itself and its evolution. This article will explore all the technical components and moving parts of proof-of-work, and how they seamlessly synchronize with one another to allow Bitcoin to be the decentralized platform it is today. The Bitcoin blockchain is often described as a database that is cryptographically secure and, subsequently, immutable. The underlying technology that powers this immutability and security is cryptographic hashing.
Money can be made, but no method guarantees profit
I read they are solving hashes, but what does that really mean. Can we see what they are solving? Can someone give an example of what a bitcoin mining machine sees to solve? They try to find a random nonce a little random data that goes into a block and makes the block have a SHA hash what really is bitcoin mining in binary starts with a certain amount of 0's.
The more zeroes the more rare hash is. A good hash' outcome is not predictable, and so you bircoin to try a lot of times to find a good nonce. The amount of zeroes are based on how difficult it is supposed to be to find a block.
In Bitcoin it adjusts to have a new block every 10 minutes on average, given the rate at which previous blocks are. Interesting: because the hashes are unpredictable it what really is bitcoin mining matter how the nonce changes! Most of the time it's just a number counting upwards from 0! Here is an extremely simplified sketch of the problem, but it should give a pretty good idea of what the problem is.
And this the hash of one special transaction that you just crafted, which gives 25BTC the reallly reward to yourself:. Now, let's use a gross approximation of what a new block might look like the real one uses binary format.
It contains the hash of the previous block and the hashes of those 3 transactions:. Now rrally do mining by hand! Our goal is to complete this block with a nonce a piece of garbage such that the hash of the new block starts with 13 zeros considering the previous hash, it seems that 13 zeroes is the current difficulty! Continue like this… If you finally find a hash that really 13 leading zeroes… you're a winner!
Other miners will now build upon your block, you've just got 25BTC. If someone manages to build a block before you do, you'll have to start again from the beginning with the new whaat hash the one of the winner. The following is a description of the global, statistical gamble which is played every 10 or so minutes. The interval of the game is controlled by the difficulty which says how many "hashes" are needed per interval.
In other words, the difficulty and target define the "odds of the house" against your chance of getting a winning SHA hash. The nonce is the "scratch off" area. At a high level, the miner software takes a list of active transactions, and then groups them together in something called a "block". Or more accurately stated: The miner software coverts all the transactions into a summary view called a "merkle root", biycoin hashes it, which is representative of the transactions.
Then mining software converts this to into a binary format called a Block Headerwhich also references the minin blocks also called a chain. The target is compressed and stored in each block in a field called bits. And the goal is to make sure the SHA hash of the block is less than this value. In the example below " 83ee " hitcoin smaller than " 83ef ".
To simplify this concept, you can ballpark the target by counting the leading zeros as the other answer here explains. Here is an example:. Here is a sample block with transactions you can view on BlockChain. Look in the upper right hand corner of the webpage for this hash:. That previous hash was from http://trackmyurl.biz/what-is-square-for-bitcoin-trading-389.html and has 14 leading zeroes.
Let's compare that to what was needed 3 years ago with block which has 8 leading zeros. Want to see what Bitcoin-QT does when it finds a block?
I posted it. The information in this post will help you understand what happened. Mining provides a way to reach consensus on what the transaction ledger should look like and know that nobody is cheating. The "authority" for double spending is the blockchain.
The blockchain consists of miining history of all blocks in the bitcoim plus the next block of transactions. The reward subsidy currently is rfally BTC to the party that submits the next block. But hey So how do you make it so that I can't cheat and claim the block myself? Well, you put in a system that you and I have to compete. That's what whah proof of work does -- it makes it so that when I claim the reward it is easy to prove that I really did the work involved.
Thus as a result, when a transaction block is submitted, all the peers verify that there were no double spends, that the right what really is bitcoin mining of subsidy was claimed, and that the submitter truly expended the work necessary for that solution. With those three rules, then there doesn't not need to be a central authority managing the process or able to control the outcome. Podcast: We chat with Major League Hacking about all-nighters, cup stacking, and therapy dogs.
Listen. Home Questions Tags Users Unanswered. What are bitcoin miners really solving? Ask Question. Asked 6 years, 9 months ago. Active 2 years ago. Viewed k whar. Related: bitcoin. Ok but WHAT data are we mining!
Nobody seems to know. I don't care how it works I want to know where the data is coming from botcoin bit mining is mininf or encrypting. Lodewijk Lodewijk 1, 9 9 silver badges 15 15 bronze badges. The data: This is the hash of the lastest block shortened to 30 characters : adf44c7d These are the hashes of a few valid transactions waiting for inclusion shortened.
It contains the hash of the previous block and the hashes of those 3 transactions: adf44c7deca4dd4-db7d0c0bdaf Now let's do mining by hand! Whqt you'll have to be fast! Back to step 1… If someone manages to build a whhat before you do, you'll have to start again from the beginning with the new block's hash the one of the winner.
Also your example is conceptually heading in the right direction, whatt the real success is when the sha hash i the header is less than the target. Reonarudo, not exactly, this is a reaally simplified sketch of what is actally kining.
Transactions are made with scripts which are often made from adresses, you can find more info on the Bitcoin wiki. This basically sounds bitclin a nice simplified summary, us at what point does the bitcoin network accept this as the next valid block, and what happens in the unlikely event that two different miners managed to submit a valid block almost simultaneously?
Reaoly, great answer! There're a couple of things I still couldn't get my head around though: Let's say you've been searching for a solution for 6 minutes and there comes a new transaction. There is no guaranty that a wat is find within 10 minutes, it's just an average statistical outcome. Blocks are broadcast by whoever mined them and relayed by other nodes. Each hash consumes electricity, and emits heat, which requires additional cooling.
This is what is done with each hash: Step 1 At a high level, the miner software takes a list of active transactions, and then groups them together in something called a "block". Step 2 Then mining software converts this to into a binary format called a Block Headerwhich also references the previous blocks also called a chain.
Field Purpose Updated when Size Bytes Version Block version number You upgrade the software and 4 it specifies a new version hashPrevBlock bit hash of the previous A new block comes in 32 block header hashMerkleRoot bit hash based on all A transaction is accepted 32 the transactions in the block Time Current timestamp as seconds Every few reallj 4 since T UTC Bits Current target in compact format The difficulty is adjusted 4 Nonce bit number starts at 0 A hash is tried increments 4 Step 3: Bitconi miner hardware changes a small portion of bifcoin block called a "nonce".
An expanded target looks like this: Target ef And the goal is to make sure the SHA hash of the block is less than this value. In the example below " 83ee " is smaller reall " 83ef " To simplify this concept, you can ballpark the target by counting the leading zeros whzt the other answer here explains. Here is an example: Here is a sample block with transactions you can view on BlockChain.
Look in the upper right hand corner of the webpage for this hash: Hash eeddffeed7fe4eda36ca2fc62c85bc5cf That previous hash was from today and has 14 leading zeroes. Hash a8ed5edccdff2eebadccc32a4bd Summary So at the end of the day, all a miner does is: Take a block header as input Change the Nonce Test if the Block Header hash is less than the Target.
File Extensions and File Formats
Less computing power means the difficulty level decreases. The role of miners is to secure the network and to process every Bitcoin transaction. Once considered an unknown and unproven currency, the cryptocurrency has become mainstream jining. Nonetheless, mining has a magnetic appeal for many investors interested in cryptocurrency because of the fact that miners are rewarded for reall work with crypto tokens. Between 1 in 13 trillion odds, scaling difficulty levels, and the massive network of users verifying transactions, one block of transactions is verified roughly every 10 minutes. What is the point of Bitcoin mining? To understand bitcoin mining, you must understand the inner workings of this cryptocurrency. Bitcoin mining is the backbone of the Bitcoin network. Partner Links. Miinng a few questions, such as how do they calculate payments?