The cryptocurrency world offers thousands of digital currencies for trading, but Bitcoin tops the charts almost every time. Be it market capitalization or popularity, price or growth- Bitcoin remains ahead of most other cryptocurrencies nearly every year. It won’t be incorrect to say that Bitcoin is the #1 cryptocurrency in the current scenario. Sure altcoins are trying to catch up to Bitcoin’s popularity, but none managed to overthrow Bitcoin from its first position. It is a blockchain-based cryptocurrency that has a limited number of tokens minted for supply. But how were these tokens created? The answer is Bitcoin mining.
Whether you’re an investor or a cryptocurrency enthusiast, you should know the fundamentals of Bitcoin mining. It will help you know this cryptocurrency better than others. If you don’t have a clear idea of what is Bitcoin mining, and its related aspects, this article is all you need to get your answers. After talking to various Bitcoin miners, we’ve curated this easy-to-understand guide with all information you should know about the mining process. So ensure you read till the end.
How Does Bitcoin Mining Work?
Since Bitcoin mining is not regulated or overlooked by any central authority, Bitcoin miners are responsible for validating transactions by solving complex cryptography mathematical calculations. Once done, a block is added to the blockchain network. To validate transactions on the Bitcoin network, miners receive the latest transaction data that is first run through a cryptographic algorithm to secure the transaction details. It prevents the transaction details from going public while ensuring the transaction gets verified in a relatively shorter time.
After the transaction data is passed through a cryptographic algorithm, a string of letters and numbers called a hash is generated. It is designed this way so its corresponding block cannot be tampered with. Even if one number or letter is out of place, the system will regenerate the hash till the time the set targets are not met. For example, the hash cannot be too big or small. And the system will keep regenerating it till it gets the perfect hash.
The entire hashing process is designed to evolve into a challenging process over time, ensuring more computing resources and efforts are required to validate transactions. And to reward the miners for completing this tedious mathematical calculation, the network gives them a set number of Bitcoins. Hence, the entire Bitcoin mining process comes with three main benefits- verifying Bitcoin transactions, incentivizing Bitcoin miners, and creating more currency.
The current Bitcoin mining process requires massive amounts of electricity and powerful computers with high processing power. Although Bitcoin mining can be done on individual computers, the rising complexity of transaction-related algorithms makes it challenging to do the work on individual computers. At present, miners use computers featuring ASIC to mine Bitcoins. You can learn more about them by going through a reliable crypto blog.
Bitcoin Mining Pools & Farms
The entire Bitcoin network aims to create at least one new block to the blockchain network every ten minutes. But it isn’t humanly possible for one individual to generate one block within ten minutes. It is where the Bitcoin mining pools and farms come into the picture. A Bitcoin mining pool combines the computational resources of various individual miners to increase the chances of hashing a block successfully.
Once a new block is generated, the rewards are distributed among the miners depending on their provided resources. Bitcoin farms are also somewhat similar. What differentiates them from Bitcoin pools is that in the case of farms, the mining rigs are located in one location. They can also be situated in one data center or warehouse.
Risks Associated with Bitcoin Mining
Mining Bitcoin can be rewarding for miners, but it comes with its set of risks. The top associated risk is related to the environment. Since Bitcoin mining requires massive energy consumption, it is estimated that it generates at least 95 megatons of carbon dioxide emissions every year. You will generally find Bitcoin mining operations being carried out in countries with relatively lower energy costs like China; wherein coal generates a significant portion of the country’s energy.
Since China banned Bitcoin mining, the United States has emerged as a top country for Bitcoin mining. However, since China banned Bitcoin mining, the global power of miners came down by 50%. And more Bitcoin mining translates to more environmental effects. There are various other risks like regulatory risks, malware attacks, etc., but the environmental risk still tops the list.
Learn Bitcoin Mining to Earn Bitcoins
If you don’t have enough budget to invest in Bitcoins but own a sharp mind and a powerful computer, you can earn Bitcoins by solving complex mathematical calculations. It is often the best way to get Bitcoins for free but requires a lot of energy and mind power.
