What is Bitcoin Mining?
In Bitcoin mining, computers “mine” and compute new BTC.
What is Bitcoin mining?
Bitcoin mining is a process in which computing power is made available for transaction processing, security and synchronization of all users in the network. Mining is a kind of decentralized Bitcoin data center with miners all over the world. This process is called mining analogous to gold mining. Unlike gold mining, Bitcoin mining has a reward for useful services. The payment of the respective Bitcoin shares is based on the computing capacity provided.
In traditional fiat currency systems, governments or central banks print more money when needed. With Bitcoin, however, no money is printed. Rather, Bitcoin is mined itself or in the cloud (cloud mining). All over the world mine (calculate) computer bitcoins and compete with each other.
How does bitcoin mining work?
People transfer Bitcoins around the clock via the Bitcoin network. The Bitcoin network processes these transactions by collecting all transactions of a certain period of time and putting them together in a list – the so-called block. It is the miner’s or prospector’s job to confirm these transactions and enter them in an account book. He is paid in Bitcoin (the Bitcoin transaction fee).
Generate a hash
The ledger is a long list of all blocks. It is also called blockchain. The blockchain is used in bitcoin mining in order to be able to track all transactions at any time. Whenever a new block is created, it is added to the blockchain. This results in an almost endless list of all transactions ever made. The blockchain is visible to everyone. Accordingly, each user can see which transaction is being carried out. However, you cannot see who is carrying out this transaction. Bitcoin is thus transparent and pseudo-anonymous at the same time.
How can you ensure that the blockchain remains intact and is never manipulated?
This is where the miners come into play. When a block of transactions is generated, miners let that block go through a process. They take the information and apply a mathematical formula that converts the transaction into something much shorter, actually just a series of letters and numbers. This is also called a hash. This hash is kept in the block at the end of the blockchain.
Hashes have some interesting properties. It is fairly easy to create a hash from the information in the Bitcoin block, but it is almost impossible to see what the hash was before. It should also be noted that each hash is unique: if just one character in the block is changed, the entire hash changes.
To create a hash, the miners not only use the transaction data in the block, but also other additional data. Part of the data is the hash in the last block of the blockchain.
Since each hash of a block uses the hash of the previous block, a kind of wax seal is created. He confirms that the current block and the one before it are valid. If someone tried to manipulate a transaction by changing the block that is already in the blockchain, they would also have to change the hash. If someone checked the authenticity of the block with the hashing function, you would immediately notice that the hash does not match that in the blockchain. The block would immediately be exposed as a forgery.
The competition for bitcoins
The miners compete with each other in the search for new blocks. Every time someone successfully creates a hash, they currently receive 12.5 bitcoins. The blockchain gets an update through the hash and everyone learns about it. This incentive system rewards mining that maintains transaction processing.
The problem is that it is very easy to haveh out a collection of data. So the Bitcoin network has to make it more difficult, because otherwise everyone would hash hundreds of blocks per second and all Bitcoins would be mined in a few hours. The Bitcoin protocol intentionally makes it more difficult for miners by introducing a so-called proof of work – the mining difficulty increases over time.
The Bitcoin network would not simply accept every old hash. The block hash must rather have a certain appearance, such as a certain number of zeros at the beginning. There is no way to know what a hash looks like before it has been produced, as it completely changes its appearance with every piece of data that is added.
Miners should not interfere in the transactions in the block. However, they have to change the data they use to create a new hash. They do this by using another piece of data set. This record is also called nonce. It is used with the transaction to generate a hash. If the hash does not find the desired format, the nonce is changed and the whole hash changes again.
Many attempts are usually necessary to find the right nonce. Therefore, the miners mostly work at the same time in the same network. Once the nonce has been found, the bitcoins are distributed to all miners according to their performance. This is how miners ultimately earn bitcoins.
What do you need to mine Bitcoin?
Popular Bitcoin miners are the Antminers. The miners are simply connected to a router via a LAN cable. Then they can be configured via the web browser. No additional device or software is required as it is a standalone miner. The latest miners now also have an integrated power supply.
If you want to mine Bitcoin yourself from home, you need the latest Antminer.
The most efficient bitcoin miner at the moment is the Antminer S19 pro with up to 110 TH / s from Bitmain. The miners are simply connected to a router via a LAN cable. Then they can be configured via the web browser. No additional device or software is required as it is a standalone miner. The latest miners now also have an integrated power supply.
Of course, mining can also be carried out professionally on a larger scale. CryptoBoost e.g. offers a complete package. It consists of a fully remote-controllable 144-min container, a safe location with cheap and green electricity and all services around. Anyone who wants to invest professionally and take advantage of opportunities as an investor can do so through an investor-owned company. The establishment of such a “legal unit” is also part of the CryptoBoost service.
Mining pools work according to the idea of collective mining. After all, if you dig alone, it takes much longer to find new blocks. It is almost hopeless because the computing capacity required would be far too large. The so-called mining pools can help here. The required computing capacity of all users is bundled here. So you can find new blocks much faster. The remuneration in Bitcoin is divided between the individual users according to the computing capacity.
With the necessary hardware, you can now log in to a reputable mining pool and collectively start Bitcoin mining there.