Have you ever wondered “What is Bitcoin mining?” If so, you’re not alone. Many people understand that the mining process created Bitcoins. However, not many people know what it is and how it actually works.
Let’s take a closer look.
What Is Bitcoin Mining?
Bitcoin mining is a process that confirms Bitcoin transactions. It also works to record them on a distributed ledger. In fact, it is the most important procedure in the whole Bitcoin network.
This is because it ensures that everyone is acting accordingly, secures the system, and successfully introduces new Bitcoins into circulation. However, no mining would be able to go ahead without Bitcoin miners. Miners all over the world work to keep the network decentralized.
They do this by deploying their electricity and hardware to participate in the system. The miners recieve transaction fees as well as freshly minted Bitcoins. These rewards help to incentivize the miners to do the work and cover any of their expenses.
Although this article is simplifying the process, this system of incentives makes up the entirety of the Bitcoin network.
How Does Bitcoin Mining Work?
In the simplest way possible, Bitcoin mining works like this:
- Firstly, miners set up their hardware in order to verify the Bitcoin network transactions.
- Verified transactions are group into a 1 MB size block every 10 minutes.
- All network computers have to complete a complicated cryptographic puzzle in order to add a new block to the Bitcoin blockchain.
- The computer able to finish the puzzle first then adds the block.
- The computer that finishes first is given Bitcoin as a reward.
As of now, once a puzzle is solved with a new block added, the miner receives a “payment” of 12.5 Bitcoins. However, over time, the price is decreasing and shrinking by half every 210,000 blocks. In fact, the very first miners were able to earn roughly 50 Bitcoins per block.
Though, in 2020, this dropped to 6.25 Bitcoins. Remember the limit of Bitcoins is 21,000,000. The amount will gradually decrease until every single Bitcoin is mined. Bitcoin mining can be a very profitable endeavor.
This is especially true when Bitcoin appreciates in value. Bitcoin miners get several other incentives over time that are highly favorable. However, they may not receive any reward at all sometimes.
This is because of the fact that only the first miner to successfully solve the puzzle is able to collect the prize. This system then encourages miners to form joint mining rigs where members are able to share the same block reward. In turn, this increases their profitability.
In 2025, roughly 95% of Bitcoins will be mined. The rest will likely enter the market by the time the year 2140 comes around. After that time, miners will only get a transaction fee as a reward.
Though it is thought that the reward will be enough to keep the network going.
Can You Mine Bitcoin?
It is entirely free to join the Bitcoin network and partake in mining due to the fact that Bitcoin is a fully open-source project. Though, this still doesn’t guarantee that you will turn a profit. You will need to buy specific mining gear, pay electricity bills, and factor in your time.
Mining will require you to purchase extremely powerful computers, known as ASICs, in order to make money with Bitcoin mining. You will also have to invest in storage and cooling gear. It is impossible to mine with a simple GPU or PC in home conditions due to the large competition amongst miners.
Though, you can pay a company with rigs to mine Bitcoin for you. All you need to do is sign a contract that makes you pay them for roughly two years of mining. Before striking a deal, make sure that you calculate if it is profitable enough for you.
The Bottom Line
If you feel that Bitcoin mining may be too risky for you, don’t forget that you can contribute by writing additions to existing Bitcoin code. You can also promote the project, create your own applications, and much more. After all, Bitcoin is a community-driven project.
This means that all people are welcome to learn and contribute.