How does Bitcoin mining work?

Cryptocurrency mining requires caution, costs and uneven returns, however, mining has a magnetic attraction for many investors interested in cryptocurrencies due to the fact that miners are rewarded for working with tokens. Probably because entrepreneurs view mining as a mine paradise like the California gold miners in 1849, and if you’re technologically inclined, why not?

However, before you invest time and equipment, read this explorer to see if mining is right for you. We’ll focus mainly on Bitcoin (we always use “Bitcoin” when referring to the network or cryptocurrency). cryptocurrency is a concept and “bitcoin” when we refer to individual token amounts)

Bitcoin rewards miners receive are incentives that encourage people to contribute to mainstream mining to support the legitimacy and monitoring of the Bitcoin and blockchain networks, as these responsibilities are spread across users. So many Bitcoins around the world are said to be “Decentralized” cryptocurrency or that do not rely on central banks or governments for oversight

Miners are paid for their work as auditors, they are verifying previous Bitcoin transactions, this meeting is dedicated to honest and pregnant Bitcoin users by the founder of Bitcoin Sato. Shi Nakamoto with transaction verification, miners are helping to protect “The Problem of Double Spending”

Double spending is a situation in which a bitcoin owner illegally pays the same bitcoin twice, with real currency this is not a problem: when you send a $20 bill to buy a bottle of vodka, you no longer have it, so There is therefore no danger that you can use these same $20 tickets to buy the next lotto ticket with cryptocurrency, however, as the Investopedia Dictionary explains, “There is a risk that holders can copy digital tokens and send them. to the merchant or other person while preserving the original.”

Let’s say you have one legitimate $20 bill and one fake $20 bill, if you try to use both the real and the fake bill someone has trouble looking at the serial number. The results of both bills will see that they are the same number, so one of them must be false. What Bitcoin miners do is similar – they verify transactions to make sure that users are not trying to spend the same bitcoin twice. Illegal. This isn’t a perfect analogy – we’ll go into more detail below.

When miners verify transactions 1 MB (megabyte) worth of bitcoin, also known as a “block”, is eligible for a bitcoin reward (more on bitcoin rewards below). The 1 MB limit was set by Satoshi Nakamoto and is controversial. This is because some miners believe that the block size should be increased to accommodate more data, which means the bitcoin network can process and verify transactions faster.

Please note that verifying a 1 MB transaction makes miners eligible to receive bitcoin, not everyone verifying a transaction will be paid.

A 1MB transaction could theoretically be as small as one transaction. (although this is not uncommon) or thousands, depending on the number of transactions required.

“So after reviewing all transactions, maybe I haven’t received bitcoin yet?”

correct.

To earn bitcoins, you must fulfill two conditions, one is a matter of effort, the other is a matter of luck.

1) You need to verify ~1MB worth of transactions. Here’s the easy part.
2) You must be the firstminer who comes to the correct answer to the numerical problem, this process is known as proof of work.

“What do you mean the correct answer to the numerical problem? ‘?”

Good news:No advanced math or computation involved, you may have heard that miners are solving difficult math problems – that’s not true. The first miner to come up with a 64 hexadecimal digit (” hash “) that is less than or equal to the target hash, it’s a guess.

Bad news:It’s a guess. But with the total number of possible guesses for each problem being on the order of the trillions, it is an incredibly difficult task to solve before miners need a lot of computational power. To successfully mine, you need a high “hash rate”, measured in terms of megahashes per second (MH/s), gigahashes per second (GH/s), and terahashes per second (TH/s).

That’s a lot of hashes.

If you want to estimate how much bitcoin you can mine with your website’s hack rate, Cryptocompare offers a handy calculator.

In addition to inserting a miner gap and supporting the bitcoin ecosystem, mining has another important purpose: it is the only way to release. cryptocurrency New into circulation, in other words, miners as currency. “Mint”, for example, as of November 2019, about 18 million bitcoins in circulation. 1 . In addition to the coins generated through the genesis block. (The first block created by founder Satoshi Nakamoto) Every single one of those bitcoins comes in because of miners, in the absence of miners the bitcoins as a network will remain and function, but no bitcoins. Further, there will finally be a time when Bitcoin mining ends. According to the Bitcoin protocol, the total number of bitcoins will be limited to 21 million 2 However, as the rate of “mined” bitcoins decreases over time, the last bitcoin will Was not circulated until 2140.

In addition to short-term bitcoin payouts, being a miner gives you the power to “vote” when proposed changes in network protocols. In other words, successful miners influence decisions in such matters as forks.

The reward for bitcoin mining is halved every four years. When bitcoin was first mined in 2009, mining one block would earn you 50 BTC. In 2012, this drops to 25 BTC by 2016. This reduces In 2020, the reward size will be halved again to 6.25 BTC. At the time of writing, the reward for completed blocks is 12.5 Bitcoin. $9,300 per bitcoin means you get $116,250 (12.5 x 9,300) to block 3 It’s not a bad motive to solve the complex hash problem detailed above, it might be.

If you want to track accurately when these interruptions occur, you can consult a watch. Interestingly, the bitcoin market price has, throughout its history, tended to closely align with bitcoin mining costs.

If you’re interested in seeing how many blocks are being mined, there are several sites, including Blockchain.info, that will provide real-time data.

Although early in Bitcoin’s history individuals were able to compete for blocks with regular home computers, this is no longer the case, the reason for this is because the difficulty of mining bitcoins is constantly changing in order to keep the blockchain running smoothly and The Bitcoin network’s ability to process and verify transactions is aimed at having one block generated every 10 minutes or so, however if there are a million rigs competing to solve the hash. They will get the problem resolved faster than the situation where 10 rigs are working on the same problem, for that reason Bitcoin is designed to estimate and adjust the mining difficulty every 2016 blocks or roughly every two weeks. When more computational power works together to mine bitcoin mining difficulty level increased to keep block production at a constant rate, less computing power means lower difficulty level, to understand the computational power involved when Bitcoin launched in 2016. 2009 The initial difficulty level is level one, as of Nov 2019, the number is over 13 trillion.

All of this is to say that in order to stay competitive, miners will need to invest in more powerful computing devices such as GPUs (graphics processing units) or more realistic application-specific integrated circuits (ASICs). From $500 to tens of thousands, some miners, especially Ethereum miners, purchase individual graphics cards (GPUs) as a low-cost way to mine together. Graphics cards are square blocks with circles around them. Notice the distorted relationship of the sandwich holding the graphics card to the metal pillars. This is probably not the most efficient way to mine and as you can guess, many miners. People are as fun and challenging as money.

The understanding of bitcoin mining can be tricky to understand. Consider this illustrative example for how a hash problem works: I told three friends that I was thinking of a number between one and 100, and I wrote the number on a piece of paper and sealed it in. Song, my friends don’t have to guess exact numbers, they’re just the first to guess any number less or equal to the number I’m thinking of, and there’s no limit to how many times they can guess.

Let’s say I’m thinking about the number 19. If friend A guesses 21, they lose because 21> 19 If Friend B guesses 16 and Friend C guesses 12, they both get real possible answers since 16 <19 and 12 <19 have no “extra credit” for Friend B even though B’s answer is close to the word. Answer goal 19. Imagine that I asked the question: But I didn’t just ask for three, my friends and I didn’t think of numbers between 1 and 100. I asked millions of workers to think I was 64 hex digits now. You see, it’s hard to guess the right answer.

If B and C answer together, ELI5 analogy breakdown

In terms of Bitcoin, the answer comes together quite often. But at the end of the day, only one answer wins. When there are multiple simultaneous answers that are equal to or less than the target number, the Bitcoin network takes a simple majority decision – 51% – which miners honor. Basically, it is the miner that works the most, i.e. the one that verifies the most transactions. ” Orphan Block ” An orphan block is a block that is not added to the blockchain. A successful miner solves the hash problem. But most unverified transactions will not be rewarded in bitcoin.

Here is an example of a number like this:

000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee

The number above has 64 digits, easy enough to understand, as you may have noticed that the number is not only but contains numbers But also the letters of the alphabet, why is that?

To understand what these letters are doing in the middle of the numbers, let’s unpack the word. “hexadecimal” apart

As you know, we use the “decimal” system, which means it’s base 10, which in turn means that every digit of a multi-digit number has 10 possibilities, zero to nine.

“Hexadecimal”, on the other hand, refers to base 16, while “hexadecimal” comes from the Greek word for six, and “deca” comes from the Greek word for 10. In hexadecimal, each digit has 16. It’s possible, but our number system only has 10 ways to represent numbers. (zero to nine) That’s why you need to enter letters, especially the letters a, b, c, d, e and f.

If you’re mining bitcoin, you don’t need to calculate the total value of that 64-digit number (hash). I repeat: you don’t need to calculate the total value of the hash.

So what does “64 hexadecimal digits” have to do with mining? bitcoin

Remember that ELI5 analogy where I wrote the number 19 on a piece of paper and placed it in a sealed envelope?

In terms of Bitcoin mining, the comparatively undisclosed amount in an envelope is known as the target hash.

What miners are doing with those big computers and dozens of cooling fans is guessing at the target hash Miners guessing these by randomly generating as many “nonces” as possible nonce. A nonce is short for “single use number” and a nonce is the key to generate these 64 bit hex numbers I’m talking about next. In Bitcoin mining a nonce is 32 bits in size which is much less than a hash which is 256 bits. The first miner that does not generate a hash less or equal to the target hash will be rewarded with credits for completing that block and a 12.5 BTC break reward.

Theoretically, you can achieve the same goal by rolling the 16-sided die 64 times to get a random number. But why would you want to do that?

Screenshots below taken from the site. Blockchain.info It might help you to quickly gather all this information. You are looking at a summary of everything that happened when block #490163 was mined. The Nonce that generated the “winning” hash was 731511405. The target hash is displayed at the top. Powered by Antpool” refers to the fact that this blog was created by AntPool, one of the more successful mining groups, as you can see here their contributions to the community. Bitcoin is they confirmed 1768 transactions for this block. If you want to see all 1768 transactions for this block, go to this page and scroll down to the “Transactions” section.

(Source: Blockchain.info)

“So how do I guess the target hash?”

All target hashes start with zeros – at least eight zeros and a maximum of 63 zeros.

no minimum goals But there is an ultimate goal defined by the protocol. Bitcoin doesn’t have more goals than this amount:

00000000ffff000000000000000000000000000000000000000000000000000

Here is an example of a random hack and the criteria for whether it will lead to success for miners:

(note: this is a made hash)

“How do I increase my chances of guessing my target hash before anyone else does?”

You’ll need to get a mining rig fast, or more realistically, join a mining pool in a group of coin miners who combine their computing power and mine Bitcoin The mining pool is comparable to the Powerball club where members buy lottery tickets and agree to share what winnings. A disproportionately large number of blocks are mined by the pool than by individual miners.

It’s just a numbers game, you can’t guess patterns or make predictions based on previous goal hash, the difficulty level of the latest blog at the time of writing is about. 13690000000000 This means that the chances of any nonce cannabis production being below the target is one. 13690000000000 is not surprising if you work yourself even with extremely powerful rigs.

“How do I decide if bitcoin is profitable for me?”

Not only do miners have to account for the costs associated with the expensive equipment required to resolve the hash, they also have to consider the sheer number of electric-powered mining rigs used to generate the number of noces in the cryptocurrency. Finding a Solution Everyone says bitcoin mining is not very profitable for personal miners as of this writing, the Cryptocompare site offers a handy calculator that allows you to plug in numbers like hash speed. and electricity bills to assess costs and benefits.

(Source: Cryptocompare)

The mining reward is paid to the miner who finds the solution to the puzzle first and the probability that the participant finds the solution is equal to the share of the total mining power in the network. There is very little chance of finding the next block by yourself, for example, a mining card that can be purchased for two thousand dollars is less than 0.001% of the network’s hash power, with a very small chance of finding the next block may be time. Long before that miner finds the block and the increasing difficulty makes things even worse, the miner may not get the investment, the answer to this problem is to mine the pool, the mining pool operates. By a third party and coordinated group of miners, by working together in the pool and sharing the payout among all participants, miners earn bitcoin continuously starting from the day they are activated. Miners Statistics on some of the mining pools can be seen on Blockchain.info.

“I did the math and forgot mining. There are harder ways to profit from cryptocurrencies.” cryptocurrencies Or not?”

The easiest way to earn bitcoins is to buy them on exchanges such as On Coinbase.com you can always take advantage of the “pickaxe strategy”. Since 1849, smart investments weren’t for gold. But to build mining pickaxes, or to put them in modern conditions, invest in companies that produce those pickaxes. The equivalent pickaxe would be a company that produces equipment used for mining. Bitcoin, you may consider choosing a company that makes ASIC or GPU devices instead.

Article Source – Investopedia.com