We all know about paper money. We know that the government prints and distributes them. But what about bitcoins? They are cryptocurrencies, so what is their source? Well, miners using special software make Bitcoin. They use software to solve mathematical problems and in exchange, they are issued some number of bitcoins. This way of issuing encourages more people to mine. Bitcoin mining is a peer-to-peer computer process to make the Bitcoin transactions safe. Miners keep the network secure by approving only verified transactions. Mining also releases new bitcoin to the public ledger called as the block chain.
Anybody having internet access and the required hardware can get involved in mining bitcoins. Mining compiles the transactions into blocks and solves a difficult puzzle. The first solver of the puzzle can place the next block on the blockchain and claim the reward too. The reward includes transaction fees and the newly released bitcoin. In the earlier days, making money from bitcoins was very easy. They could be mined with a home PC. More and more miners are getting added to the network, thus Bitcoin mining becomes all the more difficult. We need specialized hardware and need to join, what is called as a mining pool. It is a place where large numbers of miners work together and share their results. The mined coins do not contribute to a huge profit because of the expensive hardware and also the electricity consumed when mining.
Before we try to understand how easy or hard bitcoin mining is, we should understand some terminologies.
Hash is a computational problem that has to be solved by a miner’s computer. Hash rate is the rate at which the problems are getting solved. The more miners in the network, the higher is the hash rate. It also indicates the performance of an individual miner.
Bitcoin Mining Difficulty
The Bitcoin network produces a certain number of Bitcoins every 10 minutes. The difficulty level of the mathematical problems has to increase accordingly to accommodate the hash rate increase. This gives rise to a situation where if the miners are more, mining becomes harder. Bitcoin mining is in fact, designed to be difficult by keeping the number of blocks found everyday by miners, steady. Mining gets difficult because the SHA – 256 of a block should be equal to or lower than the target for the block to be received by the network. In other words, the hash of any block should start with a set number of zeros. This probability is very less so numerous attempts have to be made, which makes the task even more difficult.
It is much harder to create a new block compared to a few years ago. The blockchain is calculated per 2016 blocks to a certain value such that the earlier 2016 blocks are generated in two weeks if everyone were mining at this difficulty. This generates one block in every 10 minutes. The rate of block creation goes up as more and more miners join the network. At the same time, the difficulty level goes up to adjust itself, which in turn brings the rate of block creation down. Bitcoin mining has literally grown from a group of enthusiasts into a industry-like venture. The money-making was initially easy but in the present day, only those with special, high-power machinery can extract bitcoins profitably. It is up to you if you want to approach bitcoin as a profitable activity or as a hobby, just to have some fun.