Of the various ways to get Bitcoin, mining is one of the available ways. What is mining, and is the process similar to the concept of gold mining? Check out the explanation in this article!
What is Bitcoin Mining?
Mining is one of the two primary components that underpin the system of Bitcoin’s blockchain. In a more straightforward explanation, it can be seen as the process of building the entire blockchain system by creating new blocks and connecting them to existing blocks. Another component is the nodes that record all transaction data and act as a verification system for the latest transactions made by someone on the Bitcoin blockchain.
Miners need capital to create a new block where a transaction will be recorded by solving a complex mathematical equation to be rewarded with a certain amount of Bitcoin. Unlike the common connotation of the term ‘mining’ itself, Bitcoin mining is a computerized process that confirms every transaction on Bitcoin’s blockchain. Miners process these transactions through a hashing algorithm, a cryptographic function created by the United States National Security Agency (NSA). This algorithm guarantees all transactions and is a critical component of the mining process. Basically, all the miners in the world run hundreds to thousands of computers to generate hundreds to millions of hashes in the blockchain, as the transaction can only be confirmed once they have successfully validated the hash, which in turn causes a new block in the system. Once the block has been accepted by the entire Bitcoin system and the transaction has been confirmed within the block, the miners get BTC (Bitcoin) coins as their reward.
The system that works for miners requires electricity, time, and various hardware and software to mine Bitcoin. The proof-of-work mechanism system is what guarantees how the blockchain system runs. With so many miners in the system and many sources of computing energy, hacker attacks are also impossible against the Bitcoin system.
What Are the Activities of Miners?
Solving the computational equations in the blockchain system described above and creating new blocks in the system is a way to confirm transactions. When a portion of Bitcoin is sent from one address to another, a transaction is made and broadcast to the entire network of the Bitcoin blockchain system and waits to be confirmed. When a new block becomes available, the system inserts as many transactions into it as possible until the block is accepted by nodes worldwide as a form of verification until all transactions are confirmed.
Blocks in Bitcoin have a limited capacity, meaning that only some transactions can be established in each block. Every block created and merged into the overall blockchain system will be considered an additional confirmation of all previously confirmed transactions. Every transaction and service that accepts Bitcoin as payment usually requires up to 6 confirmations before they believe the transaction is ‘secure.’
Securing the Blockchain system
The energy used by miners as a resource used to solve computational equations to form new blocks will be measured in units of hash power. As a result, the hash power is also the energy capital that will guarantee the security of Bitcoin’s blockchain system circuit at all times.
To attack the safety of the Bitcoin system itself, someone would have to make the same transaction twice so that the first transaction would not be considered valid and undermine the value and reputation of Bitcoin as a reliable payment system. When transactions are sorted into blocks accepted by the entire system, it prevents users from using the same Bitcoin more than once. With this system, the blocks generated by miners indirectly solve the problem or possibility of transactions occurring twice so that the Bitcoin system remains safe.
Creating new Bitcoins
As we know, the amount of Bitcoin available is minimal, at only 21 million coins. Currently, the number of coins on the market does not cover all the BTC available. For this reason, mining or mining Bitcoin is one way to create new coins. Bitcoin’s creator, Satoshi Nakamoto, intentionally designed Bitcoin to be released in a predictable ratio with the block reward mechanism. Every 210,000 blocks, the reward given to miners will be halved from the previous reward ratio. The tool for reducing the reward ratio is called halving.
How to Start Bitcoin Mining
Bitcoin mining has gone from a hobby job that requires computing energy to an industry that produces and requires advanced computing equipment to continue making significant returns. Before the advent of ASICs in 2013, the average computer could mine Bitcoin and generate coins.
As the difficulty level increases, the energy required for a miner to create a new block increases over time. For now, Bitcoin mining activities are at a level where miners with everyday computing will find it difficult to compete with miners with more sophisticated equipment. For this reason, if you are interested in mining Bitcoin, you must have sophisticated computing capital and a lot of electricity to start. Especially if you are an individual miner, it will be more difficult to compete because most old players have joined a mining pool or an association of miners.
What is a Mining Pool?
The Bitcoin network aims to create a new block every 10 minutes, which means a lucky miner will be rewarded consistently over time. However, the reality is that a miner needs a lot of time to do this. That’s why mining pools were created.
A mining Pool is a combination or collection of computing systems from various miners that will use a system of sharing the results of each block reward obtained to each of its members based on contribution calculations. One of the advantages of joining mining pools is a more specific amount of rewards. Especially for an individual miner with a small computing system and energy, joining mining pools will make mining activities more profitable. Usually, miners who are not part of the pool are a person or a company that already has a more significant energy capital and computing system.