Bitcoin being a digital currency are often compared with gold. The main factor why people often do this is the process they are obtained. We all know gold is obtained by mining. Similarly, to receive bitcoins, we go through a process called “mining”.
There are two features of mining:
1. The creation of new coins
2. These coins are used to facilitates the process of transactions in the network.
Another reason to compare bitcoins from gold is that it’s also present in a limited amount just like gold. It’s said only 21 million bitcoins are current and as of 2017, nearly 17 million coins are already mined.
There is enormous competition in mining these bitcoins. As to create new bitcoins, a predictable and fixed rate is available. This rate was defined by Satoshi Nakamoto, who created Bitcoins, in the published white paper in 2008.
As of any other industry, more saturation of the miners will lead to less profit for each. This is the reason miners stay competitive as everyone wants to make maximum profit.
What you need to start mining?
All you got to do is keep adding records of the most recent or new transaction to the Blockchain – the public ledger where all transactions which have ever made in the Bitcoin network.
These new transactions are added in batches. These batches are called “blocks”. These blocks are added roughly every 10 minutes, which justifies the name Blockchain. To confirm valid transactions, the ledger is needed for the nodes of the Bitcoin network.
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If you want to start mining Bitcoin miner, you must have a computer and mining software – for example the GUIMiner. To perform complex mathematical calculation, the software will use the computer’s resources.
For solving every math problem, a miner gets a chance to create a new block. Also, the miner receives “the block reward”, a specific number of Bitcoins as a reward.
When a certain number of blocks are solved like every 210,000 blocks, or, roughly, the reward value gets changed, and it gets halved. This happens almost every four years. Back in 2009, the reward was 50 Bitcoin per block in 2009, but then in 2014, the prize was halved to 25 Bitcoins per block.
It was effortless to make profit earlier in the decade as there was less saturation among miners. You could make a profit from even your personal computer. But, for now, due to the increase in the competition, you need specialized hardware and software if you want to make a profit.
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In 2013 if one wished to start mining from the start the first ASICs – or Application-Specific Integrated Circuits – were introduced. This was designed specifically for the purpose.
However, in current time the hardware that is available for mining bitcoins are power-hungry. They consume a lot of electricity. However, ASICs always keep finding more straightforward ways and release them instantly.
When we talk about mining hardware, many companies have started producing mining hardware. These companies are Bitfury, Bitmain. However, one can find used equipment on eBay or Amazon.
What is ‘hashing’?
For encryption, hash functions are used. However, when it comes to Bitcoin, it uses a cryptographic hash function SHA-256. By the help of this algorithm, one can easily take data of any size and can turn it into a string of a length which is specific or predefined. After this is done, we get a line which is called a “hash,” and when these hash functions are applied to random inputs, then it’s called “hashing.”
Until and unless one doesn’t calculate the hash of any one input, it’s impossible to predict. The miners keep on giving hash functions to the different inputs until they get a specific hash value which is below a certain threshold, that’s why it is called “difficulty” of the network.
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However, the difficulty of the network is automatically adjusted after every 2016 blocks. If we consider this in the day, then it’s rough, every 14 days. This directly depends on the growing or shrinking combined computational power of the network.
The difficulty will increase if the network has become more potent over the last 2016 blocks. This is done to make it harder to find a valid hash and vice versa.
Hope by reading this article, you got the idea of how bitcoins are created and what is the whole process. Share with someone who would like to read this information.