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Bitcoin mining is a process in which the security of the Bitcoin blockchain is ensured and the miners or miners who do this are rewarded with Bitcoin digital currency. Bitcoin mining is a very technical and specialized operation and requires significant computer or computing power for it. Digital currency mining is expensive, laborious and only profitable under certain conditions.
However, mining is attractive to many investors interested in this field. Bitcoin mining or mining is a metaphor for the production of new bitcoins in the system. To generate new coins, miners solve mathematical puzzles created by the Bitcoin algorithm and receive a reward. This reward is included as an incentive to carry out Bitcoin operations by these people.
The reward algorithm in the pow consensus method is intended solely to keep Bitcoin users honest by its founder, Satoshi Nakamoto. Due to the fact that many users in the world take this responsibility, Bitcoin is a kind of decentralized digital currency and no central institution or authority supervises and controls it. In the rest of this article, we will explain to you the concept of real Bitcoin mining or Bitcoin mining with a laptop and answer your questions about how Bitcoin is mined? What is bitcoin mining? We will answer.
What is bitcoin mining?
Literally mine means mine and mining means extraction. Due to its decentralized nature, the blockchain system is not under the supervision of any institution. Therefore, it needs a consensus system;
It means a system that creates a process so that you can trust the transactions and movements inside that system without trusting anyone or anything. The consensus method invented by Satoshi Nakamoto was the pow consensus method, which is actually a type of lottery in which system members are given the opportunity to add blocks to the Bitcoin ledger (Bitcoin ledger). to do This process is called mining.
In the common definition, Bitcoin mining or Bitcoin mining is a process during which network validation or miners add new blocks to the chain by solving some complex mathematical equations. By confirming each transaction and successfully generating a new block, miners receive mining rewards. During the mining process, new bitcoins enter circulation and are stored in the blockchain after network approval.
Bitcoin mining is done by computers and processors (such as ASICs) with high computing power to solve calculations and complex mathematical problems. The reward for solving these issues and also confirming the transaction in the blockchain is also given to miners in the form of Bitcoin.
The correct definition of Bitcoin mining
In fact, the definition provided for Bitcoin mining, in which mining is done by solving a complex mathematical equation, is not a correct definition. In the definition of real Bitcoin mining, mining is a kind of lottery with a multi-million-sided virtual dice to generate a given hash. This work is a digital method on the computer, as soon as the miner reaches the desired hash, he wins the pow lottery and is allowed to add a block to the Bitcoin ledger. As a reward for winning the lottery, the system gives the miner a reward that was 50 BTC at the beginning of Bitcoin, which happened in 2008. Then, in 2012, its number reached 25 BTC, and in 2016, it reached 12.5 and... This process will continue until all 21 million bitcoin block ledgers are completed and no more bitcoins are produced. After that, the system will continue to work with a fixed amount of 21 million bitcoins.
Bitcoin mining in simple language
In the banking system, any financial network such as Bitcoin, transactions must be recorded. As we said, these records are added to the blockchain (Bitcoin database) in the framework of a series of blogs. Bitcoin mining is the process of adding transaction records to the Bitcoin database or ledger. The network is the first decentralized cryptocurrency and is divided into three categories: full node, mining node and light node. The most powerful of these categories are mining nodes.
In simple terms, the mining node is responsible for registering the transaction in the database and does the same thing as the centralized server of a bank. But the creator of Bitcoin has designed this process of adding transaction records to the database to be difficult; As it requires high computing power.
Of course, this was not so difficult in the beginning and it was also possible to mine bitcoins with home electricity and mine bitcoins with a personal laptop. But now, for this, powerful devices with high processing power called miners are needed.
Why is miner needed in blockchain?
Digital information and digital currencies can be copied and reproduced relatively easily compared to printed currencies. Since bitcoins are digital records, there is a risk of forgery and copying or double spending of a bitcoin. For Bitcoin and other digital currencies, there is a risk that the person who spends copies his Bitcoin and sends it to another party while the original copy is still in his hand. Fixing this problem requires a consensus about the transaction history.
Through public key cryptography, it is possible to mathematically prove the ownership of Bitcoin. However, encryption alone does not guarantee that a particular coin has not been sent to someone else before.
Mining has solved such problems. By checking transactions, miners make sure that a user has not illegally spent two bitcoins. Also, miners try to hack the network, requiring powerful resources and a lot of money. In Bitcoin mining, economic incentives are used to create reliable transaction data.
Third parties ordering transactions are decentralized and receive monetary rewards for correct behavior. In response to any wrong behavior, economic resources will be lost for them. Miners need a Bitcoin wallet to receive and store Bitcoin.
How is Bitcoin mined?
As we said, Bitcoin mining is a process that is carried out by computing systems equipped with special chips. Each of these competing systems is rewarded for solving the problems first.
Bitcoin transactions are added to the blockchain database by aggregating into blocks. Complete nodes in the Bitcoin network confirm transactions on it by keeping a record of the blockchain. Miners compile successful transactions into blocks by downloading the entire blockchain history. If the block of assembled transactions is confirmed by other miners, the miner will receive a reward in the form of a block. Another reason for miners to participate in the process is transaction fees.
In general, Bitcoin mining operations are necessary to maintain the ledger of transactions on which Bitcoin is based. There is no central authority such as a court, bank or government to determine which transaction is valid or invalid. Instead, Bitcoin mining will achieve decentralized consensus through Proof of Work (POW) consensus.
Benefits of Bitcoin Mining
The process of mining or extracting Bitcoin leads to the production of new Bitcoins by solving complex mathematical calculations by processors and computers. Also, miners provide the security of the Bitcoin payment network by solving mathematical calculations. When miners are sorting the recent transactions into a new block, part of their job is to ensure that the transactions are not duplicated and that they are correct. In addition to supporting the Bitcoin ecosystem and covering miners’ profits, Bitcoin mining is the only way to supply new digital currencies.
In fact, miners are minting new coins. In addition to yielding newly minted bitcoins, the miner can give you the power to vote when proposing changes to the network protocol. This principle, that actually miners have a degree of influence in the decisions of issues such as forking, is introduced as the Bitcoin Improvement Protocol (BIP). The best Bitcoin miners with higher hash power have more voting power in such schemes.
Read more: How can blockchain security be increased?
Disadvantages of Bitcoin mining
In addition to the mentioned advantages, Bitcoin mining is a complex and difficult activity that definitely has disadvantages. One of the main disadvantages of the Bitcoin mining process is its high cost. Today, in order to be active in the field of mining, one must use the latest hardware and equipment, which definitely brings a lot of money. In general, mining is also considered a financial risk; Because the extreme volatility and drop in the price of Bitcoin can destroy all the capital and expenses spent on buying equipment.
High cost and high energy consumption is another disadvantage of Bitcoin mining. So that using electric branching with high tariff will not be profitable in any way. Also, miners consume a lot of electricity and generate a lot of heat due to their round-the-clock activity and solving complex calculations. This has caused a lack of energy and in areas where electricity is produced with fossil fuels, Bitcoin mining will be harmful to the environment.
Read more: Bitcoin price depends on what factors?!
What is bitcoin halving?
As we said earlier, the amount of reward received by Bitcoin miners is a predetermined amount. And the amount of Bitcoin mined per day is equivalent to 6.5 BTC units. Halving is a planned action that occurs every 4 years, during which miners’ rewards will be halved. Bitcoin halving occurs after every 210,000 blocks are created. The last bitcoin halving was in 2020, and after the next halving in 2024, the miner’s reward per block will be halved to 3.25 BTC.
Hash rate in the Bitcoin blockchain
Hash rate is the unit of measurement of computing power in the proof-of-work (PoW) network. This rate is used to determine the health, security and difficulty level of Bitcoin mining. In other words, the number of attempts of a miner per unit of time, which indicates the speed of its operation in completing and solving calculations, is called hash rate. The processing power of miners is in terms of (H/S) or hashes per second.
The higher the hash rate of a miner, the faster the mining is and the more likely it is to reach the calculated answer and receive the reward. The hash rate of a miner is also calculated with other units such as megahesh per second (MH/S), terahesh per second (TH/S) and gigahesh per second (GH/S). Hashing is the process of hashing approved blocks in the process of mining Bitcoin and adding them to the blockchain.
What is a transaction fork in Bitcoin?
A Bitcoin fork is a change in this blockchain network that leads to the introduction of better features, the creation of a new cryptocurrency, or the branching of the chain. In terms of Bitcoin, simultaneous answers are possible, but there can only be one winning answer at the end of the period. When responses are submitted simultaneously, the Bitcoin network decides with a simple majority of 51% which block chain to approve.
In the usual case, the miner who does the most work or approves the most transactions and as a result is in a longer chain and is chosen as the winner. The losing block will also be known as an orphan block. Orphan blocks are not added to the blockchain and do not receive bitcoin rewards.
Network difficulty or extraction difficulty (Network Difficulty)
The difficulty of mining or the difficulty of the network (Network Difficulty) adjusts the time needed to create a new block in the network. The purpose of network hardness is the stability of the average time to create a block in the Bitcoin network. By increasing the computing power of the entire network to mine Bitcoin, the difficulty of mining also increases. The reason for the difficulty of mining or the difficulty of the network is to create restrictions for miners;
Because in the absence of this difficulty, the production time of each block will be reduced and the limitation of Bitcoin supply will disappear. In this way, the supply of Bitcoin has increased and we will witness inflation and fall in the price of Bitcoin.
Scalability
Each Bitcoin block can only store 1 megabyte of transaction data. The 1 MB limit was set by Satoshi Nakamoto; But some miners believe that the block size should be increased to accommodate more data. This means that the Bitcoin network is able to process and confirm transactions at a higher speed. Currently, with a probability of 1 in 16 trillion, the difficulty level is scaled to process less than 4 transactions per second and confirm a block every 10 minutes.
As the network of Bitcoin users continues to grow, the number of transactions completed in 10 minutes will eventually exceed the number of transactions that can be processed in that time. As a result, the waiting time for the transaction increases, unless there is a change in the Bitcoin protocol. This issue is introduced in the Bitcoin protocol as scalability.
How does Bitcoin work?
Bitcoin is developed based on blockchain technology and all its transactions are stored in the database. Blockchain is a digital ledger whose chains consist of many blocks. These blocks contain information and transaction data of users who send bitcoins to each other. All transactions and user accounts of Bitcoin are stored on the blockchain protocol. In this network, connected devices are called nodes.
One of the most important features of blockchain is its decentralization; This network was not monitored by any institution or organization since the creation of Bitcoin. Also, after each block is formed, it is not possible to delete or edit it. Bitcoin uses the Proof of Work consensus algorithm to confirm transactions and create new blocks in the chain.
Nodes
A node or node in the Bitcoin network refers to a computer that runs the Bitcoin software and participates in the transmission of information to maintain the Bitcoin network. Anyone can run a node by downloading the entire blockchain transaction history and getting the free software. Nodes are responsible for validating Bitcoin transactions and transmitting them in the network. Some nodes have special conditions, which are called mining nodes.
At the beginning of Bitcoin, all nodes were miners, but today validator nodes are different from mining nodes. Miner nodes have high processing power and collect Bitcoin transactions in blocks.
Settle transactions
Miner’s powerful computers try numbers one after the other to get the answer to each block’s equation. The hash function guarantees this process. Miners have no choice but to try and guess to get the right result. Therefore, achieving the block equation is completely random; But the more the miner has a higher processing power, the more chance it will have to find the answer. The first miner who gets the answer to the equation and the correct hash wins and informs the other nodes about it.
Immediately, all nodes compete again for the next block. In addition to a certain amount of Bitcoin as a reward, miners also receive all the transaction fees of a block.
Bitcoin mining pool
Nowadays, due to the powerful mining devices and the expansion of the network, it is possible for few people to mine Bitcoin directly. Most miners refer to virtual places called mining pools. Miners around the world connect their mining devices to valid mining pools, and the mining pool tries to earn rewards and mining on behalf of all with its total processing power.
Here, miners no longer compete directly and individually for block rewards;
Rather, depending on their processing power, they regularly receive bitcoins from the mining pool. In case of direct mining of Bitcoin by a normal miner, the chance of solving the block is close to zero.
Bitcoin mining profit
Miners can expect block rewards and transaction fees if they win a block. Fees can vary based on how much the user pays for fast processing, as well as network conditions. But at the end of 2021, average fees were close to 0.125 bitcoins, or roughly two percent of the block reward.
To measure whether Bitcoin mining is worth the effort or not, web-based calculators are used for cost-benefit analysis. Cost-benefit analysis is a systematic method that organizations use to determine what action should be taken and what action should be avoided.
If you want to estimate how much Bitcoin you can mine with a given mining hash rate, there are online calculators at sites like Nicehash and AsicMinerValue CryptoCompare. In these sites, you are given the opportunity to enter numbers such as electricity cost and hash speed to estimate your cost and profit. Of course, before allocating your resources, it is better to consider changes in the value and difficulty level of Bitcoin in the future.
What is important is the scale to immediately return the initial investment. For example, with an ASIC miner, one bitcoin is created in 5 years at a cost of about 30,000 dollars; For better results, multiple devices are needed at the same time.
Every person who decides to invest should evaluate the partnership with other existing miners who were part of the hashrate network before.
If the miner is able to share the power of his hash rate with a mining pool, the financial return will be based on a break-even period of Essic’s initial cost of about 16 to 18 months, and after that period, the miner will be able to achieve surplus profit. .
How does the market trend affect Bitcoin mining?
A miner’s income and profits depend to a large extent on the performance of other miners and market conditions. In bull markets, the price of Bitcoin may rise suddenly. In rising markets, as a result of the increase in profits, the amount of devices purchased to use the income stream increases.
As a result, each miner will generate less bitcoins than before in the process of mining bitcoins.
Finally, the resulting income will go to the equilibrium point where miners with less efficiency will earn less income in proportion to their costs. In the continuation of this process, these miners turn off their machines and give this opportunity to others to get more bitcoins. In the bear market, the trend is the opposite of the bull market. So that the income decreases until the miners turn off their devices.
Miner configuration to mine bitcoins
Buying bitcoin mining equipment from shops and manufacturers that are shipped from foreign countries may result in heavy import duties. Depending on the vendor or manufacturer, ESICs may come without a power supply and need to be purchased separately. Some ASIC manufacturers sell their power supply units. But it is also possible to use PSUs made for gaming computers or servers;
Although they may require certain changes. ASICs are connected to the Internet by an Ethernet cable and can only be configured through a web browser similar to a home router by connecting to a local IP address. After that, it is necessary to set up a user account in the mining pool that provides detailed information about how to connect to its servers.
From the ASIC web panel, you should enter the pool account information and connection endpoints. Finally, the miner can extract bitcoins.
In the management of powerful devices such as Asic, in addition to the financial risk caused by lack of profitability, there are also technical risks. When mining Bitcoin, you should also pay attention to the limitations of your electricity network. The rating of your home electrical network is up to the maximum power and each outlet has a specific rating. Excessive usage can easily cause outage or fire.
Most miners use specialized chips and hardware such as ISIC due to the high processing power that is needed to solve mathematical problems and succeed in Bitcoin mining. In 2010 and at the beginning of Bitcoin’s path, one of the common ways to mine Bitcoin was to use personal computers (CPU). But with the passage of time and the increasing difficulty of Bitcoin mining, it cannot be done without the use of advanced equipment.
Also, today, with the increase in the power of miners and the production and design of special mining hardware, Bitcoin mining is not done with home laptops and computers due to high consumption and low profitability. But it is possible that a small percentage of people will continue this activity. Therefore, we can conclude that it is possible to mine Bitcoin with laptops and ordinary computers in a very small amount. But mining Bitcoin with home electricity is not profitable at all and will only cause damage to the system and increase the cost of electricity.
As we said, Bitcoin mining is a process where processors and miners compete to solve complex mathematical problems in order to receive Bitcoins. Due to the difficulty of extraction, advanced facilities and equipment are needed for this. Due to the high hash rate of Bitcoin and the competition between miners, it is no longer possible to mine Bitcoin with home electricity and mobile phones.
The difficulty and heaviness of extraction causes pressure on the phone’s processor and in addition to slowing down the performance, the life of the mobile phone is also reduced. As a result, mining bitcoins with mobile phones is not cheap and has a small profit. But with these interpretations, there are some Android software such as Crypto Miner, CryptoTab, Bitcoin Miner, etc., which can be used to extract and receive Bitcoin rewards. .
Normally, any person can mine bitcoins, and mining bitcoins is legal in most countries such as the United States. Some countries such as Nepal, Algeria, Morocco and Afghanistan have also banned this for some reasons. In 2018, the Chinese government also considered the prohibition of Bitcoin mining illegal, and in Iran it is also legal if the necessary permits are obtained from the Ministry of Industry, Mining and Trade.
Bitcoin mining requires hardware such as GPUs, ASICs and FPGAs. Also, the energy and electricity consumption of these devices is high.
Mining a Bitcoin unit (BTC) takes about 10 minutes. Of course, mining a complete unit of Bitcoin digital currency requires high hardware and electricity.
According to forecasts, the last remaining units will be extracted in 2140. At that time, the reward of each block will be approximately equal to 1 satoshi.
The mining reward is a pre-determined amount of assets that includes newly mined BTC and a set of transaction fees for each block.
The total supply of Bitcoin is limited to 21 million coins. According to the Bitcoin white paper, after the mining process is completed, not a single number is added to the number of available bitcoins.
So far, out of 21 million bitcoins, about 19 million bitcoins have been mined, and due to the increasing difficulty of mining, the remaining mining will take 120 years.
