So you have heard of bitcoin but aren’t sure what bitcoin mining is all about? Read on to learn what bitcoin is and how it works.
Bitcoin mining is the process by which miners contribute their processing power to verify and process Bitcoin transactions and record them in new blocks on the Bitcoin blockchain.
Mining is essential to the security, integrity, and continuity of the Bitcoin network as it ensures that only valid transactions are recorded in blocks in a secure and immutable manner. The more miners contribute hash power to the Bitcoin network, the more secure the distributed network becomes.
The blockchain is the decentralized and immutable ledger that processes and records all on-chain bitcoin transactions. A ‘block’ represents a group of approved transactions. The blocks are linked together to form a chain and, thus, the term “blockchain.”
The Bitcoin network relies on a Proof-of-Work (PoW) algorithm to secure the network.
Proof-of-work is the consensus mechanism used to confirm transactions and create new blocks on the chain.
In the Bitcoin ecosystem, a miner’s objective is to add new blocks onto the blockchain by solving a complex mathematical algorithm. This is done by contributing enormous computational power to solve the mathematical problem and validate the block.
In this case, the block comprises the last 10 minutes worth of bitcoin transactions bundled together. Notwithstanding the competition, the first miner fortunate enough to solve the algorithm gets to add the new block onto the blockchain. Remember, every transaction block is used to validate every subsequent transaction block.
The successful miner will also be rewarded with newly issued bitcoin units, according to the network’s supply schedule. Presently, the reward for adding a new block is 6.25 BTC.
Since Bitcoin’s inception in 2009, bitcoin mining has become progressively difficult, making it very resource-intensive, requiring powerful mining hardware.
The Bitcoin protocol was intentionally designed to adjust the difficulty of mining one block with the aim of ensuring a steady yet reduced supply of bitcoin over time. This ensures the supply of bitcoin will eventually trickle down to its hard limit of 21 million coins being produced.
In the early days, anyone with a CPU could download the Bitcoin client and try their luck at mining. However, that is no longer feasible as the power requirements needed to validate a block are way beyond a CPU’s specifications.
Instead, bitcoin miners have increasingly turned to specialized mining hardware. At first, these were GPU mining rigs, but they soon became obsolete and were replaced by the more powerful ASIC mining rigs. Today, ASIC miners are the only viable hardware to mine bitcoin.