What exactly is cryptocurrency mining? In simple terms mining is the act of adding a block the blockchain.
Mining is usually one of the areas of blockchain and cryptocurrency that is over-explained and complicated. We believe that through simple analogies, anybody or anyone is able to comprehend mining.
Therefore, in this article we’re not going to be discussing complex technical terms and definitions such as sha256, hashes and hashes mathematical proofs, back-linked lists.
Instead, we’ll be taking the method of simplifying so that you are able to comprehend the meaning and basic concepts. We’ll refer to the Bitcoin mining network when we talk about mining because the process of mining is the most simple and popular.
Bitcoin Is A Digital Gold
To explain mining, we’ll be talking about Bitcoin in the majority of cases. Bitcoin is often described as digital gold due to several reasons. Bitcoin is a source that is 21 million Bitcoin and the supply is set, which means it will never be greater than the 21 million Bitcoin.
The reason this number is so limited is because it creates Bitcoin digitally extremely scarce. Gold is, in comparison, an extremely scarce and valuable resource.
The next question to ask is, what percentage of 21 million Bitcoin are available, and in what way can more Bitcoin get into circulation? As of when this article was written, 18.2 millions of 21 million Bitcoin are in circulation.
The new Bitcoin gets into circulation via the process of mining. The analogy with digital gold is valid in this case, since gold is also put into circulation via extraction from earth.
It is now possible to introduce the concept of difficulty. In time, it gets increasingly difficult to extract gold. This is due to the fact that in the beginning gold mines were plentiful and also contained large deposits.
Therefore, with relatively little effort, we could extract the gold out of the earth. Today, the majority of the gold that remains unmined is located in areas which are hard to extract, like deep within the ocean, or under layer of rock.
Bitcoin was created to emulate this idea. With time, Bitcoin becomes more difficult to mine and more energy is needed to bring the locked Bitcoin in circulation.
Process Of Mining Process Of Mining
There are two ways to define mining in relation to Bitcoin Both of them are valid:
- Mining is the method by which blockages are added to blockchain
- Mining is the process by which the locked Bitcoin can be released to the market
Let’s look at how this happens.
The person who invented Bitcoin, Satoshi Nakamoto, was attempting to determine how to create an anonymous network who aren’t able to believe in each other and can’t agree on the status of the shared ledger. which is known as the Bitcoin ledger. The solution Satoshi came up with is the process known as proof-of-work.
Let’s begin from the beginning. At the time that the Bitcoin network first began to operate on the 3rd of January 2009 Satoshi operated the only computer within the network.
There was not any Bitcoin available, therefore, there was no Bitcoin to trade with. But mining could still be carried out. Bitcoin is created to publish the most difficult problems to solve each block.
Bitcoin continuously adjusts this challenging issue so that it can take any number of computers around 10 minutes to resolve.
If you’re using a computer which is able to correctly find the right solution to the issue and you’re awarded by the network Bitcoin as Bitcoin.
Bitcoin was previously locked by the network is then deposited to the account of your Bitcoin address. This is the way in which the new Bitcoin gets into circulation.
The process of resolving this problem is call mining. It’s also very easy for the other users in the network to look over your answer and verify that you’ve worked hard to resolve the issue.
Thus proof-of-work. When the issue is resolved it causes it to trigger the Bitcoin network to verify the transactions that occurred within just the past 10 minutes of an individual block. The block is then added to the top of the blockchain then the process repeats.
- Bitcoin is a cryptocurrency that has a complex issue that requires about 10 minutes in the average.
- Mining companies are fighting to be first to resolve the challenging issue.
- The first person to discover the answer is the one to trigger an initial creation of brand new block, which pays the miner Bitcoin.
The process continues indefinitely.
The Limit Of Bitcoin Is Finite. Limit Of Bitcoin
The different blockchains use mining in various ways. As mentioned earlier there are only 21 million Bitcoin. If there’s an Bitcoin reward per block, then can there be a finite limit?
Satoshi was the first to implement an inflationary mechanism within his Bitcoin network, meaning that decreasing amounts of Bitcoin is released as time passes. If your computer can solve the complex problem of the block you are working on, you will be awarded Bitcoin however what is the amount?
If you mined in 2009, there was a reward of 50 Bitcoin. in 2012, the reward decreased to 25 Bitcoin. In 2016, the reward was 12.5 Bitcoin. In May 2020 the reward will change to 6.25 Bitcoin.
The amount of new Bitcoin entering the system is declining by half approximately every 210,000 blocks or about every 4 years. This model of deflation was designed to mimic gold in that it gets more and harder to remove less gold from the earth.
What time will the final Bitcoin be in circulation? Not until about 2144.
What Are The Problems With Mining?
Think about your Bitcoin network is made up of 1,000 miners. Each miner is trying to resolve the issue. Each one of them is investing all of their efforts. In any given block, only one of the 1,000 miners is able to resolve the issue and receive the prize.
That’s why the rest of the miners wasted any effort they put into trying to resolve the issue. This isn’t necessarily the case it is that the Bitcoin network requires this much energy, but rather that it’s like that the Bitcoin network was intended for the purpose of “waste” energy. It’s certainly a completely valid way to look at things. Let’s look at other angles of the debate.
The addition of more computer systems to the network will increase the complexity of the issue which in turn creates more competition in the network. The more computers are make up are in the network, the harder it becomes to break into the network, in what’s called an attack of 51.
It is believed that if one company has 51% ownership or more of the networks, they could convince the remaining 49 percent in the community that something which was not supposed to occur, actually did occur.
Thus the more computers on the network that are owned by a wider range of people it’s more secured the system is. Even though only one mining entrepreneur is paid each participant is contributing to secure network. People who view this from a different perspective don’t consider the electrical input to be wasted.
Another way of looking at this issue is in a financial global viewpoint. The issue is how much energy will it take to sustain an exchange rate of USD or EUR, or the CNY.
It is important to think about the computers that run our nation’s financial infrastructure, as well as the energy needed to operate the printing presses, and the thousands of people needed to protect and aid in the management of the money.
Additionally, cash in physical form must be replaced once every two years, which creates an ongoing need to run the printing presses. One interesting aspect of this is that how often the bill has to be replaced is contingent on the amount that the money is in.
Thus, $1 bills have to be changed every 18 month, while 100 cents bills only has to be replaced each 9-year period. Every country with their own currency should have an own financial infrastructure however, Bitcoin’s Bitcoin network is worldwide because of its design.
In addition, since every Bitcoin transaction is basically equal in the network. It costs no more to transfer 10 dollars than it costs to send $10 million. Transferring 10 million dollars in money is an enormous task.
Thus, even though Bitcoin’s Bitcoin network uses more power than Ireland’s country of Ireland it could be the cost we have to pay to try out new forms of currency. This could just be the cost of creating the infrastructure, securing it, and then distributing the world’s financial web.
Do All Blockchains Require Mining?
Some blockchains do not require mining. Following the creation of the Bitcoin network, mathematicians, cryptographers and economists began to study the manner the Bitcoin operates, and also found the technological infrastructure.
They have named the technology behind it Blockchain. They recognized that Blockchains generally consist from a number of distinct components.
An easy method to break down this Blockchain is to separate it into the component that handles transactions, as well as the component that allows all participants of the network to come to an agreement on the events that took place. The latter part is known as”the consensus mechanism. Proof-of-work is the main feature of Bitcoin.
When the components were discovered the network was re-established and people began to devise new methods to secure the network.
They also came up with different consensus mechanisms. The other two most common consensus mechanisms are proof-of-stake (POS), and delegated-proof-of-stake (DPOS).
These mechanisms for consensus are more efficient in terms of energy consumption, but there’s plenty of controversy about how secure these two methods.
It is important to note that we’re not bound to using proof-ofwork for each blockchain. We are able to choose the right consensus mechanism to accomplish the task according to the usage of the case.
Do I Have The Opportunity To Participate In Mining?
Anyone is able to participate in mining processes. The issue is whether it’s profitable to invest in this. It is possible to earn an amount of money every month using a regular computer, but not through mining Bitcoin.
Instead, you should download a program that enables the mining of any of different blockchains that rely on proof of work networks.
The most efficient method of taking part in mining is to download Honey Miner as well as Miner Gate. These services take care of all the work for you, and you can download the program and switch it on. Then, they will pay you a reward for the mining contribution.
Graphics cards that are commonly used by gamers to play high-performance video games, are also used extensively to mine cryptocurrency.
If you have several graphics cards due to being an avid gamer and you’re sleeping you can switch into a miner in your PC and make some money. Be aware that this could shorten the life span of your graphics cards.
Additionally, there is special hardware, called application specific integrated circuits , also known as ASICs which are available for purchase with the sole function of ASICs is mining Bitcoin.
They are designed specifically designed for serious miners. Mining’s profitability is contingent on how much you spend for electricity. So , if you’re able to get low-cost electricity, perhaps mining is something you’d like to look into.