What is Bitcoin Mining?

bitcoin mining what is it

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.

bitcoin mining what is it

You can't have Bitcoin without mining. Confused? Here's how it all works

The popularity of Bitcoin is rising as more and more people are learning about it. However, it is still difficult to understand some ideas related to Bitcoin — Bitcoin mining is definitely one of. What is Bitcoin mining? How does Bitcoin mining work? How long does bitcoib take to mine a bitcoin…? There are so many questions we ask ourselves when we first read about Bitcoin mihing mining. In this guide, you will find all the answers you need.

How Bitcoin Mining Works

That software forces the system to complete complicated calculations — imagine them digging through layers of digital rock. Bitcoin works differently from traditional currencies. Where dollars and pounds are handled by banks and financial institutions which collectively confirm when transactions occur, Bitcoin operates on the basis of a public ledger system. In order for transactions to be confirmed — to avoid the same Bitcoin from being spent twice, for example — a number of Bitcoin nodes, operated by miners around the world, need to give it their seal of approval. For that, they are rewarded the transaction fees paid by those conducting them and while there are still new Bitcoins to be made — there are currently more than In taking part in mining, miners create new Bitcoins to add to the general circulation, whilst facilitating the very transactions that make Bitcoin a functional cryptocurrency. Mining is a risky process though.

bitcoin mining what is it

Money can be made, but no method guarantees profit

Mining is the process of creating new Bitcoins, in which computers solve complex mathematical problems. Mining is the only way to issue cryptocurrency. People who are engaged in mining are called miners. This word also means specialized devices that bitcoin mining what is it installed in computers for the purpose of Bitcoin mining.

In part, miners can be compared with the participants of torrent trackers, which, by running a special program, enable other users to download movies or music. In the case of Bitcoin, miners maintain the functioning of the payment system, confirm transactions and maintain a consensus about the uniform and unchanged state of the entire network. As a reward, they receive Bitcoins. The process of mining is to calculate the hash output data of the block header in the blockchain. A block includes a hash of the previous block header, a transaction hash, and a random number.

When forming a new block, the miner receives a reward — a certain amount of Bitcoins. As a rule, transactions included in a block are considered confirmed after six consecutive blocks have been calculated. Today, cryptocurrency mining often occurs in specialized data centers, which are also called mining farms. In essence, a farm is a room where there is a certain number of computers with mining software installed. The room has the required temperature or other methods of cooling are used.

Bitcoin extraction was quite possible at home at the very beginning of its existence. The competition among miners leads to a higher number of miners in the network, resulting in increased mining complexity, and miners receive less profit. Today bitcoin mining what is it is no longer possible. Modern mining uses expensive specialized devices and chips, the production of which has already turned into a separate multi-million bitcoin mining what is it industry.

Does it mean that to do it alone makes no sense? Probably yes, unless you have enough money to get expensive equipment and be able to pay for its maintenance costs. However, bitcoin mining what is it does not mean that you have no chance to earn on mining. There are so-called pools associations of miners that attract ordinary users to the process. Pools can include hundreds and thousands of cryptocurrency miners who receive their share of the reward in accordance with the size of the contribution.

The network sees such a pool as a single miner producing hundreds of gigahashes per second, although in fact it is one main server that distributes tasks to individual miners. This practice is more effective and brings rewards faster, although it works in small installments. The next reduction halving of the award will take place in If you are a member of a pool, the pool receives this award by distributing it among the participants. The difficulty of finding blocks changes every blocks or about once every two weeks.

As the power of the network increases, so does the complexity. Yaroslav Birchenko is a knowledgeable trader who has been making money in the financial markets for over 6 years. His approach is to combine fundamental analysis and technical analysis with sentiment. Years of training and trading allows him to make money in any economic environment. Main markets: Forex, US stock market, Cryptocurrency. Crypto Currencies.

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What is Bitcoin Mining?

How Bitcoin Mining Works

In the future, as the number of new bitcoins miners are allowed to create in each block dwindles, the fees bitcoim make wbat a much more important percentage of mining income. Navigation menu Personal tools Create account Log in. How do mining pools help? Pools and specialized hardware has unfortunately led to a centralization trend in Bitcoin mining. Miranda Marquit has been writing about money for The Balance since With less data whqt verify per block, the Solution 1 would make transactions faster and cheaper for miners. In a hexadecimal system, each digit has 16 possibilities. The term "Relayed by Antpool" refers to the fact that this particular bitcoih was completed by AntPool, one of the more successful mining pools more about mining pools. Fortunately, mining computer systems spit out many, bitcoin mining what is it more hash possibilities than. But, there are some problems with their theories as we'll discuss. This is something we're asked everyday! For instance, a mining card that one could purchase for a couple of thousand dollars would represent whag than 0. A loses his mining reward and fees, which only exist on the invalidated A -chain. To earn bitcoins, you need to meet two conditions. Red would be taking a big risk by sending any goods to Green before the transaction is confirmed. Red may now consider sending the goods to Green.

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