What is mining? In short, mining is the process of confirming and recording transactions in a distributed ledger. Most of the things you need to know about mining can be found in our guides…
Most people already know that Bitcoins are created through the mining process. But how does it work exactly?
What is Bitcoin Mining?
Bitcoin mining involves confirming Bitcoin transactions and recording them on a distributed ledger. This is the most important procedure in the entire bitcoin network, as it secures the system, ensures that everyone is doing the right thing, and introducing new bitcoins.
Of course, no mining activity would take place without miners. Miners around the world maintain the decentralized network by deploying their equipment and electricity in order to participate in the system. In turn, they are rewarded with transaction fees and freshly mined Bitcoins. These rewards incentivize miners to do the work and cover their expenses.
Although this is a gross simplification, such a system of incentives constitutes the Bitcoin network.
In very simple terms, it works like this:
– Miners configure their hardware to verify Bitcoin network transactions.
– Verified transactions are aggregated into a single 1MB block every 10 minutes.
– All computers in the network must solve a complex cryptographic puzzle to add a new block to the Bitcoin blockchain.
– The first computer to solve the puzzle adds the block and is rewarded with Bitcoins.
Currently, once the puzzle is solved and a new block is added to the blockchain, the miner receives a bounty of 12.5 bitcoins. The price decreases over time – it halves every 210,000 blocks. The first miners had earned 50 Bitcoins per block, while in 2020 the rate will drop to 6.25 Bitcoins this is the halving. You can use sites such as Bitcoin Clock https://www.bitcoinclock.com to learn more.
Keep in mind that there will be no more than 21,000,000 BTC created. The artificial limit is necessary to keep the Bitcoin economic system in deflation. Currently, newly mined Bitcoins are incentivizing miners to maintain the network, but the amount is expected to gradually decrease until 21 million BTC is mined.
Mining can be very profitable, especially as Bitcoin continues to rise in value. Miners also earn user fees paid for their transactions. However, sometimes they may receive no reward at all, as only the first miner to solve the puzzle collects the prize. Such a system encourages miners to form joint mining rigs (farms) where all members share the same block reward, thereby increasing their profitability.
By 2025, 95% of all Bitcoins will be mined, with the rest entering the market by 2140. After that date, miners will only receive transaction fees as a reward, but this should be reward enough to keep the network.
Can you mine Bitcoin?
Bitcoin is a fully open-source project. Thus, everyone is free to join the Bitcoin network and participate in mining. However, this does not guarantee you a profit, as you have to buy special mining equipment and pay electricity bills which can be expensive. To make money mining Bitcoin, you need to buy extremely powerful computers (called ASICs), invest in cooling and storage equipment. Due to the fierce competition between miners, it is impossible to mine with a simple PC or GPU in home conditions.
You can determine how much you can earn using a Bitcoin mining calculator; many are available online.
You can also pay a company with rigs to mine Bitcoin for you. You sign a contract that obligates you to pay them for about two years of operation and to receive periodic payments in crypto, according to the agreement. However, before entering into such a deal, you need to calculate whether it is profitable enough for you.
If you think mining is too risky for you, you can also contribute by writing additions to existing Bitcoin code, creating your own apps, or simply promoting the project. Bitcoin is a community project, which means everyone is welcome to learn and contribute to the network in any way they can.
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