If you have done some reading on cryptocurrency, then the chances are high that you have come across the phrase “Bitcoin mining.” This phrase seems to be quite intriguing and industrial and might even make you wonder if people are mining cryptocurrencies in real life.
To put your mind at ease, Bitcoin mining is completely virtual, although it is as important as mining for gold. So, let us learn more about what it actually is and how it is done.
What is Bitcoin Mining?
Bitcoin mining is basically done for two reasons which are:
- Verifying transactions: This makes sure that everyone uses their own bitcoins.
- Introducing new bitcoins: This means that new bitcoins are introduced to the market.
Since there is no central body like the Federal Reserve that manages all the transactions of Bitcoins, there is a need to use computers all over the world. The miners group the transactions into blocks.
How Does It Work?
Picture bitcoin mining as a massive worldwide math problem that begins all over again every ten minutes.
- Transaction Packing: Whenever there is any transaction with bitcoin, these transactions are placed in the waiting room (memory pool). Then the miners take these transactions and package them in blocks.
- Solving the Puzzle: The miners must solve the cryptographic puzzle to complete the block. The miners use the data in the block in a mathematical equation (SHA-256) until they get a certain hash value.
- Takes it All: The first miner to solve the puzzle makes it known to the network. Once the solution is verified by the other miners, it forms part of the blockchain.
- The Prize: The miner who successfully solves the puzzle gets the reward which consists of Bitcoin (block reward) and the transaction fee earned from the transactions made by users whose transactions are in the block.
Is It Possible to Mine Bitcoin on a Personal Computer?
Initially (in 2009-2011), you could mine Bitcoin on a regular computer while enjoying your movies. Nowadays, it is simply not possible.
With an increase in the number of computers, the mathematical difficulty would adjust automatically to make sure that 10 minutes block interval remained constant. At present, mining requires:
- ASIC Mining Devices: Application-Specific Integrated Circuits, which is a special computer chip designed specifically for mining Bitcoin.
- Cheap Electricity: The amount of electricity consumed by these devices is huge; thus, miners arrange the equipment in places with cheap energy and efficient cooling systems.
- Mining Pool: Typically, an individual miner pools his computational resources together with thousands of others from all over the world and gets compensated proportionally to work done.
Bitcoin mining isn’t easy cash for nothing on the Internet; it’s work that requires computer power and energy to build trust within the network. Although this has evolved into an industry-driven activity involving massive infrastructures, knowing about this process is the key to knowing why and how Bitcoin is valued.
