You’ve likely heard of Bitcoin mining, but perhaps you’re not sure if you’ll need a mining pick or a supercomputer to get the job done. Simply put, the mining process involves adding new transactions to the Bitcoin blockchain. The blockchain is decentralized, which means that nobody owns it, but everyone can contribute to it.
Bitcoin Transactions and Mining
When you make a payment with a credit card or conduct any cashless fiat transaction, the bank is the trusted third party that ensures the transaction is completed. In this case, the bank has all the power and can block or facilitate any transaction it chooses. It’s also the only party that can update the ledger of everyone in the system.
On the other hand, Satoshi Nakamoto conceptualized Bitcoin in his whitepaper as a decentralized peer-to-peer (P2P) network where users are rewarded for keeping the participants honest. All transactions on the network are final, and there is no central authority that can control what users do with their Bitcoin. Network participants (miners) use their computer hardware to confirm and check Bitcoin transactions, eliminating the need for a bank-like entity.
Miners need to dedicate their computing power and electricity and are rewarded with new Bitcoins for their work. The maintenance and development of the Bitcoin ledger are referred to as mining.
Where Are Bitcoin Transactions Recorded
New transactions are added in blocks to the blockchain, the underlying technology that makes cryptocurrencies possible.
Blockchain is a special type of database where information is structured in blocks rather than tables. Each block refers to the previous block and has a value that new blocks use to link themselves to, creating a chain in the process.
Furthermore, the public ledger on the blockchain holds a record of all transactions made with Bitcoin, and it’s constantly updated.
What Computer Hardware Is Used for Mining?
When Bitcoin was first launched in 2009, there were no hardware barriers to entry. First, miners could use their PCs, including laptops and desktop computers, to mine with their computer processing units or CPUs. As the technology advanced and new software for mining was developed, mining with graphics processing units or GPUs was more profitable and pushed CPU mining out of the picture.
Nowadays, Bitcoin mining includes specially designed hardware called Application-Specific Integrated Circuits. These chips are specifically engineered to mine crypto or a certain hashtag algorithm. It’s almost impossible to mine Bitcoin with different hardware.
How Mining Works in Practice
Most often, mining is depicted as a mathematically complex task. That’s not entirely accurate. There’s no advanced groundbreaking problem-solving. Each miner is competing to find a 64-digit hexadecimal number, a value often referred to as a hash, and miners need to find the one equal to or less than the target value.
Because the mining process is guesswork, the most efficient mining hardware is the one that can create and check more hash values, basically delivering a better “hash rate.” Only those who find the appropriate solution will be rewarded for adding a new block to the blockchain.
Joining a Mining Pool
Since only one miner gets rewarded for finding a solution for the new block, miners join forces by creating groups or pools. When the mining pool finds a new block, all miners get rewarded proportionally for their work.
Can You Start Mining Bitcoin?
With access to appropriate hardware, anyone can start mining Bitcoin. However, it’s not as simple as plugging in a device and getting your wallet filled with digital gold.
ASIC miners are much more expensive than home computers, and top-notch hardware costs thousands of dollars. Furthermore, they consume a lot of power. Unless electricity is affordable where you live or have access to renewable energy, it can drastically impact your return on investment.
About the author:
Aleksandra is a Content Specialist at CryptoBlokes.com. She’s a bitcoin and blockchain technology research author, with a background in economics. Other areas of focus include growth in marketing, IT, and e-commerce.