Bitcoin Mining: What is it and how does it work?

Bitcoin Mining is a peer-to-peer computer process used to secure and verify online transactions, create virtual currency and verify online signatures.

DEFINITIONS

Crypto1earn

10/6/20222 min read

Bitcoin Mining
Bitcoin Mining

What is Mining?

Definition

A mining network generates and releases new Bitcoin and verifies new transactions by using specialized computers.

The process of mining is what generates new coins and verifies new transactions in Bitcoin and other cryptocurrencies. It entails the verification and security of blockchains - the virtual ledgers that record cryptocurrency transactions - using vast, decentralized networks of computers located all over the world. Computers on the network get new coins for contributing processing power. Miners maintain and secure blockchains, blockchains award coins, and coins incentivize miners to keep up blockchain security.

How does mining work?

Cryptocurrencies like bitcoin can be bought in three ways. Coinbase lets you buy them, receive them as payment, or mine them virtually. As an example, we will use Bitcoin to illustrate the third category.

Bitcoin mining might be something you want to try. The Internet was accessible to anyone with a decent home computer a decade ago. Due to blockchain's growth, however, its maintenance has become more computationally intensive. The first bitcoins were mined in January 2009, and it took 12 trillion times more computing power to mine one in October 2019. So hobbyists aren't going to be able to make money mining bitcoin anymore. There are now a large number of mining companies or groups of people who pool their resources together for the purposes of mining. However, knowing how it works is still helpful.

  • Bitcoin transactions are verified and recorded by special computers using complex calculations. Miners voluntarily contribute enormous amounts of computing power for the purpose of verifying the blockchain.

  • Data centers are a lot like bitcoin mining. The mining companies buy the hardware, and they pay for the electricity. You have to earn more coins than you spend to mine them for it to be profitable.

  • How do miners stay motivated? An annual lottery is held by the network. A 64-digit hexadecimal number called a "hash" is guessed by every computer on the network. In order to earn the reward, a miner must spit out guesses as quickly as is possible.

  • A predetermined amount of newly minted bitcoin is awarded to the winner once the blockchain ledger is updated with all the newly verified transactions. Approximately every ten minutes, this occurs. A reward of 6.25 bitcoin was offered as of late 2020 - but it will be halved in 2024, and every four years thereafter. As the difficulty of mining increases, the reward will diminish until there is no more bitcoin to mine as the reward will keep decreasing as the difficulty of mining increases.

  • Until there are 21 million Bitcoins, there will never be any more. 2140 is the theoretical deadline for the final block. In the future, miners will no longer be relying on newly minted bitcoin as a reward, but instead will be relying on the fees that they charge for making transactions in order to compensate for their work.

Why is mining important?

Mining plays a major role in the security of Bitcoin (and many other cryptocurrencies). As a peer-to-peer decentralized network, cryptocurrencies are verified and secured by it, which eliminates third-party oversight. A mining network can use its computing power to provide a service to the rest of the world in exchange for bitcoins.