What You Need To Know
How Bitcoin Mining Works

Bitcoin mining is the core of the operation of the bitcoin network. It provides a means of updating the blockchain that supports bitcoin.

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Cryptocurrency (illustrative)
Cryptocurrency (illustrative)
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What is Bitcoin Mining?

Bitcoin mining is the core of the operation of the bitcoin network. It provides a means of updating the blockchain that supports bitcoin. People that mine bitcoins are called miners. It is necessary to mine bitcoins with specialized and powerful computers. These specialized computers solve a complex problem that allows them to add new blocks of verified transactions to a chain of blocks (hence the name Blockchain). When miners do this successfully, they get the reward of newly mined bitcoins. Therefore, miners make sure that the bitcoin network continues its operation.

What is the Essence of Bitcoin Mining?

Bitcoin mining aims to achieve three core purposes. They include:

Maintenance of the bitcoin network’s security: Miners make it more difficult to attack or invade the bitcoin network. The network gets secure as the number of miners rise. The diversity of hash power among the miners make the network safe.

Production of new bitcoins: Consider fiat currencies such as the dollar or euro. Government-regulated banks are responsible for “mining” new units of paper currency. Based on the condition of the economy, a central bank regulates the amount of money in circulation. The same thing happens with bitcoin, with a slight difference. Miners bring new bitcoins into existence. The maximum number of bitcoins that can ever be in circulation is 21 million BTC. The last bitcoin will not be mined until the year 2140. The code behind the blockchain network has been configured to ensure that minors don't cheat. They have to use the computing ability of their specialized computers to get bitcoins. The system rewards miners accordingly.

Verification of transactions: When a transaction is included in a block, it is completed. This also means that the transaction has been linked to Bitcoin’s blockchain. Miners verify transactions by including them within the blocks on the Bitcoin network. The number of confirmations needed to verify a transaction increases as the payment amount increases. For example, three confirmations are required for bitcoin payments between $1,000 and $10,000.

Is Bitcoin Mining Legal?

This answer to this question is still a grey area. This depends on your physical location and the laws within your country. Bitcoin downplays the supremacy of government authorities in watching over citizens. Some countries completely outlaw bitcoin for this reason. However, you can own and mine bitcoins in most countries because they have no laws against bitcoin or cryptocurrency in general. Check your country’s stance on this to know if you can mine bitcoins.

What Makes Bitcoin Mining Difficult?

The major factors that make bitcoin mining difficult are:

Hardware and software requirements: At the inception of bitcoin, it is possible that individuals were able to mine bitcoins with their personal computers. However, this is no longer the case. If miners want to stand a chance in competing for blocks, they need specialized hardware. An Application-specific integrated circuit (ASIC) device is the most important piece of hardware you need to mine bitcoins. This device comes at no small price. The cost of a new ASIC device can range from hundreds of dollars to more than $10,000. This is not only the amount you will sacrifice. These ASIC devices use up an enormous amount of electricity. You will be expecting a large electricity bill if you mine bitcoins. Over time, the electricity cost will run into hundreds of thousands of dollars. In addition to these, you will also need Bitcoin mining software. However, the software is not so costly. You might even be able to get it for free.

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The Bitcoin mining difficulty factor: It is more difficult to add a new block to the chain than bitcoin's inception. It keeps getting harder. This helps to maintain the proper operation of the blockchain network. The Bitcoin network aims to generate one block every ten minutes. If one million miners are trying to add a new block to the network, there is a greater chance that one will do so faster than when ten miners are competing. One million miners have more computing power to mine a bitcoin. After every two weeks, it has been estimated that 2016 blocks would have been mined. Therefore, the network increases the difficulty of generating a new block every two weeks. This helps to stabilize block production.

With the factors given above, you will make a tremendous loss in the long run if you mine bitcoin on your own. The number of resources you will expend to mine a single bitcoin is too high. You will spend thousands of dollars with almost nothing to show for it.

What Are Mining Pools?

Mining pools exist because of the difficulty of mining one bitcoin. These pools are formed when miners combine their computing power but split the reward and difficulty of mining bitcoins. Each pool member will receive a specified fraction of one bitcoin when the mining pool is rewarded.

Conclusion

We cannot exhaust all the details on how bitcoin mining works. However, you now have an idea of how it works. If you feel the need to mine bitcoins, your best bet is to join a mining pool. It will give you a higher success chance.



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