What Is Bitcoin Mining?
Bitcoin mining is the process of making sure that the information in a blockchain block is correct by coming up with a cryptographic solution that meets certain requirements. When a correct solution is found, the miner who found it first gets a reward in the form of bitcoin and fees for the work done.
Over time, Bitcoin miners get less money for their work. This process of giving out rewards keeps going until there are 21 million bitcoins in circulation. When that number is reached, the bitcoin reward will stop, and Bitcoin miners will be paid for their work through fees.
In 2021, Tesla stopped letting people buy electric cars with Bitcoin. Why? Mining, the process of making new units of the best-known cryptocurrency in the world, causes people to worry about the damage it does to the environment.
Computers that create new Bitcoins use a lot of electricity, which is often made from fossil fuels. The real-world cost of electricity is one of the things that gives the digital currency, which is worth around $23,600 right now, real-world value.
No matter where the electricity comes from, mining is a key part of Bitcoin’s existence as a decentralized currency. The cryptocurrency mining industry is moving toward renewable energy sources.
Whether you want to buy Bitcoin outright, mine it yourself, or invest in companies that mine Bitcoin or make equipment for mining, you should first know what Bitcoin mining is.
How Does Bitcoin Mining Work?
Here’s a simple example that shows how it works. Say you ask your friends to guess a number between 1 and 100. Your friends don’t have to guess the exact number; they just have to be the first to guess a number that is less than or equal to your number. If you are thinking of the number 19, and your friends guess 21, 55, and 83, they all lose because they all guessed more than 19. But if you only have three friends left and the next one guesses 16, they win and the others don’t get to guess.
The first person to guess a number less than or equal to 19 was the one who said 16.
In this case, the number you chose, 19, is the target hash that the Bitcoin network makes for a block, and the random guesses from your friends are the guesses from the miners.
Solving complex algorithms is needed to check Bitcoin transactions and record them on the blockchain. All of this is part of Bitcoin’s proof-of-work consensus mechanism, which aims to add a new block every 10 minutes.
The better a miner’s computer is, the more likely it is that it will win blocks.
Bruce Fenton, CEO of the fintech company Chainstone Labs, says, “They have a chance to earn Bitcoin every 10 minutes based on how much computing power they use.”
Patricia Trompeter, CEO of cryptocurrency miner Sphere 3D Corp., says that the latest Bitcoin mining machines use application-specific integrated circuits (ASICs) that have been programmed for Bitcoin mining to handle all of the computing power that is needed.
Rob Chang, CEO of Gryphon Digital Mining, a privately held Bitcoin miner, says that the current generation of these dedicated Bitcoin mining rigs can come up with possible answers to Bitcoin block equations at a rate of about 100 trillion hashes per second.
A Bitcoin Hash is a measure of how much computing power is used to process transactions on the network.
How to Mine Bitcoin
Since Bitcoin came out in 2009, the amount of energy needed to make it has gone up as the network has made it harder to mine in order to keep the flow of new blocks of transactions steady as more miners join.
Bitcoin mining is usually done on a large scale by companies using data centers with servers made for that purpose. Many mining computers can be kept in warehouses that are part of mining farms.
David Weisberger, CEO of the trading platform CoinRoutes, says that the cost of electricity to power the mining computers is a key factor in whether or not these kinds of activities are profitable.
Because of this, farms are often near energy sources like dams, oil and gas wells, solar farms, or geothermal sources.
“The difficulty goes up as the number of network participants goes up,” says Jagdeep Sidhu, president of the Syscoin Foundation, which is in charge of the open-source blockchain project Syscoin.
How to do Bitcoin mining at home
Institutional miners have an advantage over home miners because they can get low-cost power and save money by buying Bitcoin mining rigs in bulk.
“There are still people who run Bitcoin mining operations from their homes, but the process has become expensive and regulated, which hurts the smaller miners,” says Baker.
But that doesn’t mean that it’s impossible to mine Bitcoin at home.
If you want to mine Bitcoin at home seriously, you’ll need to buy an ASIC Bitcoin mining rig, which can easily cost more than $10,000.
“However, mining at home might not be worth it because of how much electricity costs for homes,” says Trompeter. “ASICs are also very loud and can get too hot if they aren’t cooled properly.”
To figure out how profitable Bitcoin mining might be, you can use an online calculator that takes into account, among other things, your electricity costs.
Even people who have an ASIC mining machine at home tend to pool their computing power with other ASIC owners and share the Bitcoin reward based on how much they contributed to the pool. Even though you can mine a block by yourself, that’s about as likely as winning the lottery.
You can also try cloud mining, in which you buy, rent, or lease hardware or computing power that is hosted by someone else.
How Long Does It Take to Mine a Bitcoin?
Risti says that since a new block is made about every 10 minutes, a new Bitcoin is made about every 96 seconds. But that one Bitcoin is likely split among many miners around the world.
William Szamosszegi, CEO of Bitcoin mining platform Sazmining, says that it can take a single miner a very long time to mine one Bitcoin. Sazmining connects retail miners with green Bitcoin mining facilities.
Here is what a company that mines bitcoins does: In April, Gryphon Digital Mining said that it had mined the equivalent of 61 Bitcoins during the month.
To get these results, a lot of computer power is needed. (For its operations, the company even bought more than 7,000 Bitcoin mining rigs for $48 million in July 2021.)
Because the competition is so tough, most Bitcoin miners work together as part of a “mining pool.” As part of the pool, they combine their hash rates, which increases their chances of solving a block on Bitcoin’s blockchain.
The History of Mining Bitcoin
Two events have changed the way Bitcoin mining works and how it has changed over time. For starters, making unique Bitcoin mining computers centralized the network. Since Bitcoin mining is mostly guessing, how fast your computer can make hashes has a lot to do with how quickly you can find the right answer before another miner.
In the early days of Bitcoin, most Bitcoin mining was done on desktop computers with regular CPUs. In the end, it took a lot longer to find activities on the cryptocurrency network because the algorithm got harder over time. Using CPUs, some say it would have taken “several hundred thousand years on average” to find a true block at the level of difficulty in early 2015.
3D GPU Mining
Over time, miners learned that graphics cards, which are also called graphics processing units (GPUs), were better at mining and could do it faster. They used a lot of power, though, and weren’t made for heavy digging. GPUs eventually fell behind and couldn’t keep up, so companies started limiting how much mining they could do.
Field-programmable gate arrays (FPGAs), which are a type of GPU, were better, but they had the same problems as GPUs.
Mining with ASICs
Application-specific integrated circuit (ASIC) miners are the tools that miners use these days. They are customized and come with special chips that make bitcoin mining faster and more efficient. They cost between a few hundred dollars and tens of thousands of dollars. It is now so hard to make money mining bitcoin that only the newest ASICs can be used. But one unit is rarely enough to beat mining pools, even if you have the newest one.
Having Trouble Mining Bitcoin
Because of the huge number of users who check transactions and the fact that the odds are 1 in 16 trillion, one block of transactions is checked every 10 minutes on average.
But don’t forget that 10 minutes is a goal, not a rule.
There are between three and six transactions that can happen on the Bitcoin network at any given time. These transactions are recorded in the blockchain every ten minutes.
Visa, on the other hand, can handle about 65,000 transactions per second.
Even though second-layer solutions and updates to the Bitcoin blockchain have tried to speed things up, modern banking networks and other blockchains can still handle many more transactions than Bitcoin.
How to Scale
Scaling is the word for this problem that is at the heart of the Bitcoin system. Bitcoin miners mostly agree that scaling needs to be fixed, but they don’t all agree on what that fix should be.
Bitcoin has been changed by adding upgrades and letting layers that do a lot of work off-chain contribute. However, it still has problems with being able to grow.
Use of Energy
Bitcoin’s mining process has always used a lot of energy, even when it wasn’t in use. For the first ten years after it started, most Bitcoin mining took place in China, which gets most of its energy from fossil fuels like coal. It’s no surprise that climate change campaigners are interested in Bitcoin mining because it uses so much energy. Some estimates say that the process of mining cryptocurrency uses as much energy as several countries.