What is Bitcoin Mining – Summary
Bitcoin mining is not done by traditional miners who go to underground tunnels, but the rewards could be quite as high. Bitcoin mining is done by high-end computers. These computers solve computational math problems that cannot be solved by hand. But what are these math problems that need to be solved? We will tackle that later in the article.
As of this moment, there is a 1 in 13 trillion chance of a computer solving one of these complex problems. The luck needed by a computer to solve a complex problem and earning 1 bitcoin may be similar to the luck required for a miner to strike gold.
What is Bitcoin: Bitcoin Vs Traditional Currencies
Consumers tend to trust printed currencies since money is backed by a central bank. Central banks around the world regulate the production of new money, and producers of counterfeit money are prosecuted.
Even digital payments using legal tender are backed by central banks. Online purchases using credit cards for instance are processed by a payment processing company like Visa or Mastercard. These companies record your transaction history and verify if transactions are fraudulent or not.
Bitcoin is not regulated by a central authority. It is backed by millions of computers across the globe called “nodes.” The network of computers backing up bitcoin performs the same function as the central banks and payment processing companies with some key differences. The Nodes store information regarding past transactions and at the same time verify the authenticity of the transactions. One primary difference between Bitcoin and Central Banks is that the nodes are located all around the world and record transaction data in a public list. This means that it can be seen by anyone, which makes it very secure and transparent.
What is Bitcoin Mining – Detailed Explanation
There is a “transaction” when someone sends or receives Bitcoin anywhere at any time. Transactions made using traditional currency are recorded by official receipts, POS systems and banks. Bitcoin miners do the same thing. Miners clump together transactions into “blocks” and add them to a public record known as the “blockchain.” The Nodes then keep the records of those blocks which can be used as verification in the future. When a new block of transactions is added to the blockchain, part of the Miner’s job is guarantee that those transactions are accurate.
In other words, Miners act as sort of auditors and get paid for it. Miners verify previous bitcoin transactions to prevent the “double spending” problem and keep bitcoin users honest. Double spending happens when a bitcoin owner illicitly uses the same bitcoin twice. When it comes to digital currency like Bitcoin, there is a risk that the holder could make a copy of the digital currency and use it to buy goods and services retaining the original at the same time.
Physical Currency is not as prone to double spending as digital currency. If you give a seller $150 in cold cash to buy to buy a new smartphone, you no longer have it. You cannot use the cash you gave to the seller to purchase another item.
However, physical currency can be subject to double spending by using counterfeit money. For instance, a person spent real money and counterfeit money to buy a new laptop. Let us assume that someone that took the trouble of looking at the serial numbers of both bills. The person would see that the bills had the same serial number which makes one of them a counterfeit. What a bitcoin miner does is similar to that — checking transactions to make certain that users have not tried to spend the same bitcoin twice.
Verifying Transactions (Bitcoin Mining Steps)
If a miner has verified 1Megabyte (MB) worth of bitcoin transactions, known as a “block,” that miner has a chance to be rewarded with a quantity of bitcoin. Satoshi Nakamoto, the founder and creator of bitcoin set the 1MB rule and has sparked controversy among miners. Some miners believe the block size should be increased to accommodate more data, which would effectively mean that the bitcoin network could process and verify transactions more quickly.
It is important to point out that verifying 1MB of transactions gives a miner a Chance to get rewarded. This means that even after all that work of verifying transactions, you still might not get paid.
Two conditions must be met in order to earn Bitcoin. The fist is a matter of effort; the second is a matter of luck.
First Condition: You have to verify 1MB worth of transactions. Easy peasy.
Second Condition: You have to be the first miner to get the right answer to a computational problem. This process is also known as proof of work.
What is this computational problem? You don’t need to be a genius to solve this computational problem because it is all guesswork. If you have heard that bitcoin miners are solving difficult mathematical problems, well that’s not true. What they do is they try to be the first miner to come up with a 64-digit hexadecimal number (a “hash”) that is less than or equal to the target hash. Again, it is guesswork and the guesses are in the order of trillions. That’s where the powerful hardware comes into play. In order to mine successfully, you need to have a high “hash rate,”.
Miners play a vital role in the Bitcoin world and cryptocurrency as a whole because mining is the only way to release new cryptocurrency into circulation. As of Nov. 2019, there were around 18 million bitcoins in circulation. As mining continues, the number of bitcoin in the world increases.
As per Bitcoin Protocol, the total number of Bitcoins is to be capped at 21 Million. When this cap is reached, bitcoin mining will end. However, the rate of bitcoin “mined” is reduced as time goes by. It is estimated that the final bitcoin will be circulated at around the year 2140.
Bitcoin Mining Rewards
There are as many as 500,000 purchases and sales that occur everyday, which gives a lot of work for miners. As a form of compensation miners, are awarded bitcoin whenever they add a new block of transactions to the blockchain.
Block Reward is the term used for the amount of new bitcoin released with each mined block. Every 210,00 blocks, the block reward is halved. This happens about every 4 years. The Block Reward in 2009 50. It was halved in 2013 and went down to 25. In 2018 it went further down to 12.5, and on May 11, 2020, it was successfully halved to 6.25.
Going back to the halving of Block Rewards, this reduces the rate at which new Bitcoins are rewarded and circulated which it turn lowers the supply. This can result to high demand and push prices higher and higher and make the cryptocurrency more valuable over time.
How Did Bitcoin Get Very Valuable?
When people started using Bitcoin by agreeing to use these mathematical tokens as money in various online transactions what they did was essentially “backing” their value and turning them into a currency. Unlike the physical currency cowry:
- There is only a definite number of bitcoins. There will never be more.
- Bitcoins are impossible to counterfeit.
- Bitcoins can be divided into fractions.
- They can be transferred instantly.
Bitcoins are given their value by the community. An additional factor is the supply and demand. Bitcoins do not need to be accepted by anyone else or backed by any authority or central bank. Thus, Bitcoin is much more effective currency for the whole world.
Earn Free Bitcoin Through Bitcoin Mining
As promised, I will provide you with ways on how to earn Bitcoin via Bitcoin Mining. First, you must have a cryptocurrency wallet. If you don’t have one, read this post about Bitcoin Basics and check what wallets you have to open. They’re free.
If you already have a crypto wallet, go and signup with these free legit Bitcoin Mining sites below that I have gathered in order to start mining right away. Make sure to use the links I provide to get free bonus hash in order for you to mine faster.
- Mining-Up – Free 100 Gigahash when you sign up using the link.
- Multimining – A simple and free cloud based website for Bitcoin Mining.