Where do Bitcoins come from? What is Bitcoin mining? What is a Bitcoin mining rig? How can you mine a virtual coin? These are some of the many questions people wanting to know about Bitcoin mining. Let me explain:
ELI5 Bitcoin Mining
In short, Bitcoin mining is a computer that has the protocol downloaded on it. The computer (miner) will usually run 24/7, and it picks up transactions made by Bitcoin users. It takes all the transactions and puts them into a block.
When it’s time, the miner will send the block to nodes (different computers, with a different job to miners), the node will then verify all the transactions, and then the miner will try and work out the mathematical puzzle that Bitcoin asks. The first miner to work out the puzzle will win the block reward, which is 12.5 BTC.
There is much more to mining, and I will go into it deeper for anyone interested.
Proof of Work
The Bitcoin algorithm is based on a proof of work consensus. This means that all bitcoins are worked into existence. The proof of work is done by the nodes and miners, who continuously work to verify and add all transactions to Bitcoin’s ledger.
The miners are continuously processing data to try and discover the correct answer to the cryptographic puzzle, and it’s basically trial and error before any miner gets the correct answer, and that is known as discovering the block.
Each discovered block must have the proof of work hashed into it for it to be accepted by the nodes and added to the blockchain.
The Block Reward
When a miner discovers the block that specific computer will be awarded the block reward. For now the block reward is 12.5 BTC every block, which is roughly every 10 minutes. However, the block reward is cut in half every 210,000 blocks, which is about 4 years.
The next block reward is due to take place in about 2 weeks, when it will be cut to 6.25. Roughly, every four years after that there will a 50% cut in the block reward. This will go on until about 2140, when the last fraction of BTC will be mined.
Miners are also paid a percentage of the transaction fees paid for by the sender. The fee is an incentive for the miner to include the transaction in the block. In the future, as the block reward dwindles, the transaction fees will end up being the majority of the miners’ income, but for now the block reward is the largest part of it.
Bitcoin Mining Difficulty
Mining a bitcoin on the SHA-256 algorithm is difficult, and as mining gets more popular and more miners join the network, the time of each block creation speeds up. After 2016 blocks if they have been produced too quickly to difficulty adjustment will ensure that it slows down.
Each block is intended to take 10 minutes to produce, and if the speed of producing blocks slows down, because miners might have turned off their rigs as it was too difficult and they were earning less, then the difficulty would adjust the other way, to speed up block creation again. This happens every 2016 blocks or roughly every 2 weeks.
Bitcoin Miners Secure The Bitcoin Network
All of this proof of work and difficulty adjustment ensures that Bitcoin is the most secure network ever created. Mining is such a critical part of the security of the Bitcoin network, and is also an integral part of how the newly minted bitcoins are disseminated.
Each miner plays a vital role to help the nodes reach a secure, tamper-resistant consensus. Working together these two parts of the network ensures Bitcoin’s network effect will keep growing from strength to strength.
A Bitcoin miner is a a computer that mines the Bitcoins. They're commonly known as mining rigs, and each rig has the Bitcoin protocol downloaded on it.
Mining rigs can be either application-specific integrated circuits (ASICs), or a mining rig made up with a GPU system.
ASICs are the most powerful miners and the most powerful: Bitmain Antminer S19 Pro ensures a miner will get a hashrate of up to 110 TH/s.
Bitmain's competitor: Micro BT has recently announced they are to release an even more powerful ASICs miner. The Whatsminer M30S++ is believed to hash up to 112 TH/s.
For GPUs it depends how many you have in your rig, but a few powerful GPUs include:
Each GPU varies in power consumption and hash stability, but all of the above will give you an excellent chance of earning some block reward.
ASICs mining rigs are the best by far, but they're also the most expensive. If you afford one, I recommend them, as they're easier to manage, too. However, mining with a GPU is a great way of mining and will ensure you get a return, and you will learn a lot more about mining, too.
You want to make sure you join a mining pool, as well. Being a solo miner means you're highly unlikely to win the block reward, even if you have the most powerful ASICs miner. Take a look at our mining pool review for an objective look.
Whatever mining rig and mining pool you decide on, you are entering the fantastic world of mining Bitcoin. It's an 11 year old innovation but the industry is just getting going. I'm sure, like most miners, as long as you don't over-leverage yourself, you will have great fun and earn some BTC along the way.
Author: Tommy Limpitlaw