The popularity of bitcoin is growing day by day, but even today it is still difficult to understand some ideas about bitcoin. The prime purpose of bitcoin as envisaged by its elusive creator, Satoshi Nakamoto—is to provide a way to exchange tokens of value seamlessly without relying on centralized intermediaries like banks. Instead, all the needed record keeping is virtually decentralized into an always-expanding ledger ‘block chain ‘that stores the history of all transactions of bitcoins in circulation.
But when there is no inter medial authority, then who decides whether or which transactions are valid and which ones are not and which ones should be added to block chain and which ones should not? And what ensures that the system is not cracked, for instance by using similar bitcoin twice? Our answer is mining. So, what is bitcoin mining really?
What is bitcoin mining?
By mining bitcoin, you can earn crypto currency without necessarily having to put down money for it. That means that you don’t have to mine bitcoin to have it, you can buy bitcoin using fiat currency and trade it later using other forms of crypto. You can also earn bitcoin by playing video games or publishing blogs for sites that pay with bitcoins. There are so many ways that you could earn bitcoin without mining. However, if you can invest in the right equipment, then mining bitcoin should be your to-go method. Bitcoin mining is, therefore, the process of verifying, securing and storing bitcoin transactions. It’s pretty apparent that there is more to it than just that as bitcoin is entirely different from other currencies. Those who mine bitcoin are referred to as bitcoin miners— ‘people using computers to mine bitcoin.’
The mining computers (nodes) have to be quite powerful as bitcoin requires a lot of computer power to mine. They run a software that connects them to the bitcoin block chain that solves mathematical problems. Every time these mathematical problems are solved, a new transactional data is verified and stored on the bitcoin block chain. This is the crucial part that explains why bitcoin doesn’t need banks or credit card companies to verify its transactions because the bitcoin miners verify those transactions, Therefore, no third party not brokers to trust or rely on.
Bitcoin miners are rewarded with new bitcoin. It is the only way new bitcoins can be created. Remember that only a total of 21 million bitcoin can be mined and when all the 21 million have been mined, then no new bitcoin can be created. Currently, there are 17,225,338 mined bitcoins. The reward for mining a full block is about 12.50 worth of bitcoins. To explain more about blocks and all the technology put in bitcoin mining, let’s look at how bitcoin mining works.
How bitcoin mining works
We already know that bitcoin uses ‘block chain’. Well, that’s where the term ‘block’ comes from. Bitcoin transactions happen simultaneously. All transactions that happen at the same time are put in groups termed as ‘blocks. It is these blocks or groups of transactions that bitcoin miners must verify—they verify them in groups instead of individually. That is why miners have to have powerful computers, lots of electricity and a reliable internet connection to verify the blocks. Once a block has been verified, it is then added to the chain of blocks which have already been verified. And that is why the technology behind bitcoin is called BLOCK CHAIN.
What you need to mine bitcoins
We have already mentioned some of the necessary materials that you need in order to start mining such as internet, electricity, and nodes. One of the main things a miner should focus on is the mining hardware. Back in 2009 when bitcoin mining began, primary computers could easily do the mining using the central processing unit (CPU). Nowadays, miners are using powerful computers using graphics processing units (GPU) to solve mathematical problems.
The next essential step is joining a bitcoin mining pool. You can choose to do it as solo mining or join groups called mining pools where the miners combine power to mine bitcoins and then share the bitcoin reward. You will also need to download the mining software into your computer. The mining hardware is useless without the software. You will need the software every step of the way as it will also help you to join a mining pool.
Last but not least is a bitcoin wallet. Well, after all the hard work of getting a hardware, downloading a software, joining a mining pool and eventually mining your bitcoins, you will need a storage to store your rewarded bitcoin—a bitcoin wallet as bitcoins cannot be stored in bank accounts.