The term mining would usually be connected to mining gold. With bitcoins however, this is the process wherein miners solve a computational or mathematical problem that allows the chaining up of blocks of different transactions in a public ledger.
It is the miners that serve as the core or backbone of the entire bitcoin infrastructure. Without these miners, the network could lose all its intrinsic value and disintegrate. Miners are responsible for securing every bitcoin transaction and the network as a whole.
As an incentive, miners are rewarded with newly discovered bitcoins plus transaction fees. When mining bitcoins, you get to compete against other miners or everyone else in the network who wants to discover bitcoins. Bitcoin mining validates and secures transactions which are then recorded on stored on a public ledger.
Understanding Blockchain Technology
Bitcoin transactions are recorded in bundled transactions; hence referred to as a blockchain. These are time-stamped series of transactions that are referred to as blocks.
The blockchain works like a public ledger that can be accessed readily, shared freely, and updated continuously without any central control or mediation from banks or other financial institutions.
What Happens with Bitcoin Mining?
When mining bitcoins, that would require a bitcoin mining hardware that runs cryptographic hashing on a block header which is likened to solving algorithms or mathematical equations in a rapid pattern. There is a different number used randomly for every new hash tried. This number is referred to as nonce.
Mining difficulty is adjusted in order to keep the blocks coming at an interval of 10 minutes for each hash. The difficulty level is then continuously adjusted with a shared formula applied for every 2016 blocks. The network will change them in such a way that 2016 blocks would take a total of 14 days’ processing power. Note that each time the network power increments, the difficulty level also increases.
Mining is said to be a huge waste in terms of power. However, in bitcoin mining, the entire blockchain network is grinding for billions to trillions of dollars.
There is a limited amount of bitcoins waiting to be mined or discovered – 21 million bitcoins to be exact. Mathematical equations are solved every two weeks on the average, for every 2016 blocks.
With the dramatic increase in bitcoin prices, mining is seen to be very lucrative and profitable especially for miners who are all out with their investments.
Two Ways to Mine Bitcoins
- Mine on your own. When you choose to mine bitcoins on your own, you would need a hefty investment in order to accumulate profit.
- Join a pool of miners. For an average bitcoin miner, you can join a bitcoin mining cloud or a mining pool so that everyone profits for every hash contributed into the pool. This also generates a more stable payout especially because you pool your resources together (bandwidth, electricity, time, and effort).
The first bitcoin ATM can be found in Canada. Bitcoin mining therefore is considered legal in Canada. The cold climate in the country is also conducive for mining efforts. Bitcoin transactions in Canada are regarded as barter while the profits coming from bitcoin transactions are subject to income as well as capital gains taxes.