- Created: 21-01-22
- Last Login: 21-01-22
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What Is Bitcoin Mining?
Bitcoin mining is the process by which new bitcoins are entered
into circulation; it is also the way that new transactions are
confirmed by the network and a critical component of the maintenance
and development of the blockchain ledger. "Mining" is
performed using sophisticated hardware that solves an extremely
complex computational math problem. The first computer to find the
solution to the problem is awarded the next block of bitcoins and the
process begins again.
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
Asic Miners are
rewarded for their work with crypto tokens. This may be because
entrepreneurial types see mining as pennies from heaven, like
California gold prospectors in 1849. 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.
A New Gold Rush
The primary draw for many mining is the prospect of being rewarded
with Bitcoin. That said, you certainly don't have to be an
Antminer
to own cryptocurrency tokens. You can also buy cryptocurrencies using
fiat currency; you can trade it on an exchange like Bitstamp using
another crypto (as an example, using Ethereum or NEO to buy Bitcoin);
you even can earn it by shopping, publishing blog posts on platforms
that pay users in cryptocurrency, or even set up interest-earning
crypto accounts.
An example of a crypto blog platform 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 Whatsminers receive is an incentive that
motivates people to assist in the primary purpose of mining: to
legitimize and monitor Bitcoin transactions, ensuring their validity.
Because these responsibilities are spread among many users all over
the world, Bitcoin is a "decentralized" cryptocurrency, or
one that does not rely on any central authority like a central bank
or government to oversee its regulation.
Mining to Prevent Double Spend
Avalon
Miners are getting paid for their work as auditors. They are
doing the work of verifying the legitimacy of Bitcoin transactions.
This convention is meant to keep Bitcoin users honest and was
conceived by Bitcoin's founder, Satoshi Nakamoto.1 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. With physical currency, this isn't
an issue: once you hand someone a $20 bill to buy a bottle of vodka,
you no longer have it, so there's no danger you could use that
same $20 bill to buy lotto tickets next door. While there is the
possibility of counterfeit cash being made, it is not exactly the
same as literally spending the same dollar twice. With digital
currency, however, as the Investopedia dictionary explains,
"there is a risk that the holder could make a copy of the
digital token and send it to a merchant or another party while
retaining the original."
Let's say you had one legitimate $20 bill and one counterfeit
of that same $20. 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
Innosilicon 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.
Mining to Produce New Bitcoins
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 September 2021, there were around 18.82 million
bitcoins in circulation, out of an ultimate total of 21 million.2
Aside from the coins minted via the genesis block (the very first
block, which was created by founder Satoshi Nakamoto), every single
one of those bitcoins came into being because of miners. In the
absence of miners, Bitcoin as a network would still exist and be
usable, but there would never be any additional bitcoin. However,
because the rate of bitcoin "mined" is reduced over time,
the final bitcoin won't be circulated until around the year 2140.
This does not mean that transactions will cease to be verified.
Miners will continue to verify transactions and will be paid in fees
for doing so in order to keep the integrity of Bitcoin's
network.3
To earn new bitcoins, you need to be the first miner to arrive at
the right answer, or closest answer, to a numeric problem. This
process is also known as proof of work (PoW). To begin mining is to
start engaging in this proof-of-work activity to find the answer to
the puzzle.
No advanced math or computation is really involved. You may have
heard that miners are solving difficult mathematical problems—
that's true but not because the math itself is hard. What
they're actually doing is trying to be the first miner to come up
with a 64-digit hexadecimal number (a "hash") that is less
than or equal to the target hash. It's basically guesswork.1
It is a matter of guesswork or randomness, but with the total
number of possible guesses for each of these problems being on the
order of trillions, it's incredibly arduous work. And the number
of possible solutions only increases the more miners that join the
mining network (known as the mining difficulty). In order to solve a
problem first,
Goldshell Miners need a lot of computing power. To mine
successfully, you need to have a high "hash rate," which is
measured in terms gigahashes per second (GH/s) and terahashes per
second (TH/s).
Mining and Voting Power
Aside from the short-term payoff of newly minted bitcoins, being a
coin miner can also give you "voting" power when changes
are proposed in the Bitcoin network protocol. This is known as a BIP
(Bitcoin Improvement Protocol). In other words, miners have some
degree of influence on the decision-making process on such matters as
forking. The more hash power you possess, the more votes you have to
cast for such initiatives.
How Much a Miner Earns
The rewards for Bitcoin mining are reduced by half roughly every four
years.1 When bitcoin was first mined in 2009, mining one block would
earn you 50 BTC. In 2012, this was halved to 25 BTC. By 2016, this
was halved again to 12.5 BTC. On May 11, 2020, the reward halved
again to 6.25 BTC.
Bitcoin mining is the process by which new bitcoins are entered
into circulation; it is also the way that new transactions are
confirmed by the network and a critical component of the maintenance
and development of the blockchain ledger. "Mining" is
performed using sophisticated hardware that solves an extremely
complex computational math problem. The first computer to find the
solution to the problem is awarded the next block of bitcoins and the
process begins again.
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
Asic Miners are
rewarded for their work with crypto tokens. This may be because
entrepreneurial types see mining as pennies from heaven, like
California gold prospectors in 1849. 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.
A New Gold Rush
The primary draw for many mining is the prospect of being rewarded
with Bitcoin. That said, you certainly don't have to be an
Antminer
to own cryptocurrency tokens. You can also buy cryptocurrencies using
fiat currency; you can trade it on an exchange like Bitstamp using
another crypto (as an example, using Ethereum or NEO to buy Bitcoin);
you even can earn it by shopping, publishing blog posts on platforms
that pay users in cryptocurrency, or even set up interest-earning
crypto accounts.
An example of a crypto blog platform 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 Whatsminers receive is an incentive that
motivates people to assist in the primary purpose of mining: to
legitimize and monitor Bitcoin transactions, ensuring their validity.
Because these responsibilities are spread among many users all over
the world, Bitcoin is a "decentralized" cryptocurrency, or
one that does not rely on any central authority like a central bank
or government to oversee its regulation.
Mining to Prevent Double Spend
Avalon
Miners are getting paid for their work as auditors. They are
doing the work of verifying the legitimacy of Bitcoin transactions.
This convention is meant to keep Bitcoin users honest and was
conceived by Bitcoin's founder, Satoshi Nakamoto.1 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. With physical currency, this isn't
an issue: once you hand someone a $20 bill to buy a bottle of vodka,
you no longer have it, so there's no danger you could use that
same $20 bill to buy lotto tickets next door. While there is the
possibility of counterfeit cash being made, it is not exactly the
same as literally spending the same dollar twice. With digital
currency, however, as the Investopedia dictionary explains,
"there is a risk that the holder could make a copy of the
digital token and send it to a merchant or another party while
retaining the original."
Let's say you had one legitimate $20 bill and one counterfeit
of that same $20. 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
Innosilicon 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.
Mining to Produce New Bitcoins
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 September 2021, there were around 18.82 million
bitcoins in circulation, out of an ultimate total of 21 million.2
Aside from the coins minted via the genesis block (the very first
block, which was created by founder Satoshi Nakamoto), every single
one of those bitcoins came into being because of miners. In the
absence of miners, Bitcoin as a network would still exist and be
usable, but there would never be any additional bitcoin. However,
because the rate of bitcoin "mined" is reduced over time,
the final bitcoin won't be circulated until around the year 2140.
This does not mean that transactions will cease to be verified.
Miners will continue to verify transactions and will be paid in fees
for doing so in order to keep the integrity of Bitcoin's
network.3
To earn new bitcoins, you need to be the first miner to arrive at
the right answer, or closest answer, to a numeric problem. This
process is also known as proof of work (PoW). To begin mining is to
start engaging in this proof-of-work activity to find the answer to
the puzzle.
No advanced math or computation is really involved. You may have
heard that miners are solving difficult mathematical problems—
that's true but not because the math itself is hard. What
they're actually doing is trying to be the first miner to come up
with a 64-digit hexadecimal number (a "hash") that is less
than or equal to the target hash. It's basically guesswork.1
It is a matter of guesswork or randomness, but with the total
number of possible guesses for each of these problems being on the
order of trillions, it's incredibly arduous work. And the number
of possible solutions only increases the more miners that join the
mining network (known as the mining difficulty). In order to solve a
problem first,
Goldshell Miners need a lot of computing power. To mine
successfully, you need to have a high "hash rate," which is
measured in terms gigahashes per second (GH/s) and terahashes per
second (TH/s).
Mining and Voting Power
Aside from the short-term payoff of newly minted bitcoins, being a
coin miner can also give you "voting" power when changes
are proposed in the Bitcoin network protocol. This is known as a BIP
(Bitcoin Improvement Protocol). In other words, miners have some
degree of influence on the decision-making process on such matters as
forking. The more hash power you possess, the more votes you have to
cast for such initiatives.
How Much a Miner Earns
The rewards for Bitcoin mining are reduced by half roughly every four
years.1 When bitcoin was first mined in 2009, mining one block would
earn you 50 BTC. In 2012, this was halved to 25 BTC. By 2016, this
was halved again to 12.5 BTC. On May 11, 2020, the reward halved
again to 6.25 BTC.