What Is Bitcoin Mining?



What is mining?

Mining is the process of minting new crypto coins. In bitcoin and many other altcoins, computers solve complex mathematical problems to mine coins. The term obviously refers to the mining of gold or other natural resources.


Who mines bitcoins?

Those people are called miners. On the other hand, the devices that actually mine bitcoin and other cryptocurrencies are also called miners.


What do miners do?

Miners maintain the system operation, confirm transactions, and keep up the consensus of the single and immutable state of the network.


How does mining work?

Mining is about calculating the hash of a block header in the blockchain. The block includes the hash of the previous block header, the hash of transactions, and a random number. When the new block is formed, the miner gets a certain amount of bitcoins as a reward. Many miners “fight” for the same reward. The transactions included in the block are usually considered confirmed once six blocks in a row have been calculated.


What about the hardware?

Cryptocurrency is mined in special data centers also known as mining farms. A typical farm is a room full of ASIC devices (Application-Specific Integrated Circuits). The room must have a certain temperature or some devices to cool down the miners.


Is mining profitable?

The profitability of mining depends on the price of power supply, the performance rate of the hardware, the current mining complexity, and the price of bitcoin. The increase in the number of miners as well as the emergence of more powerful devices result in the increase of complexity. It negatively impacts profitability.


What hardware do I need to mine bitcoin?

While at the dawn of bitcoin people could mine it at home, now it requires serious computational power that personal computers do not have. Mining today requires very expensive devices and chips. Their manufacturing is a multimillion industry now.


So there’s no sense in doing it at home?

Yes, it’s hardly reasonable unless you’re wealthy enough to buy expensive equipment and then pay astronomical bills. Still, it doesn’t mean you cannot become a miner. There are mining pools, which are in fact associations of thousands of individual miners. They all share the rewards proportionally to their contributions. The network sees such a pool as an individual miner producing hundreds of gigahashes per second. In fact, it’s just a central server distributing problems among individual miners. This approach is more efficient, though the reward comes in small fractions.


How much is bitcoin mining reward?

The block reward halves every four years. In early 2013 it was 50 BTC, then it was 25. In summer 2016, it comprised 12.5 BTC. The next halving is expected to happen in 2020.If you’re a pool member, you may expect a reward proportional to your mining power. The block finding difficulty changes every 2016 blocks (or roughly on a bi-weekly basis). The increase of the network power increases the difficulty.

There are lots of services calculating the current profitability of mining for given algorithms and devices. WhatToMine is arguably one of the most popular of them.

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