What is Bitcoin Mining and How is it Done?
Over the past couple of years, Bitcoin has seen unprecedented growth, leading many individuals and institutions, who were otherwise oblivious, to take an interest in the digital currency. If you're a crypto enthusiast who has been following Bitcoin since its inception in 2009, then you must know that mining was the most efficient form of obtaining Bitcoin at that time.
What is Bitcoin Mining?
Bitcoin is a decentralized network that relies on miners to maintain its blockchain - a ledger containing the record of all transactions since Bitcoin's inception. Since the ledger is public, one might suspect that agents with mal intent can easily change transaction records to their favor; however, that's not the case. The blockchain relies on cryptographic programs to verify every transaction and place it into groups called transaction blocks.
New transaction blocks get placed into the blockchain linked with the previous one using these programs. If any individual tries to change the block, the link that ties it to the blockchain changes as well, identifying where the mistake took place. This is where miners come in.
What Do Miners Do?
Miners are not individuals but rather computers acting as nodes on the network. Their job is to make new transaction blocks for the blockchain by collecting transaction data, finding inconsistencies, and looking for any double transaction. Additionally, they verify transaction blocks made by different nodes on the network. All these tasks help miners receive Bitcoin as a reward.
Perhaps their most important function of miners is finding collisions. The Bitcoin network relies on hash functions to ensure the blockchain remains secure. Hash functions give the same output for a given input without revealing the inner workings of the process. Sometimes it may happen that multiple inputs can give you the same output; however, it is very unlikely and only requires guessing to figure out. Miners compute these guesses other inputs for a particular output. When they find a matching output for different inputs, it's called a collision. Miners receive a reward for finding collisions, and that's how new Bitcoins come into circulation.
Bitcoins are finite, and only 21 million are ever going to come into circulation. The rewards that miners receive continues to half approximately every four years. When it started out in 2009, the reward was 50 Bitcoins for finding a collision; currently, it has come down to 6.25, with the last halving event occurring in May 2020.
Since finding a collision is a guessing game, every miner has a chance to earn this reward; however, their likelihood of receiving a reward depends on the number of active nodes on the network and how quickly they can find collisions. Miners can increase their chances of finding collisions by using machines that have a higher rate of computation.
How to Mine Bitcoin?
You can start mining Bitcoin using the computational power of your PC. When Bitcoin started, crypto enthusiasts would rely on the power of their CPUs and GPUs to compute hashes. Mining Bitcoin entails joining a mining pool online like bitcoin system. Nodes on mining pools combine their computational power to carry out tasks and divide the reward amongst themselves.
You can increase your computational power using aftermarket attachments to your PC that house GPUs. GPUs are much more robust hardware that can handle computationally intensive tasks much more quickly. With the added GPU, power hashes can be computed at a faster rate, earning you more profit.
As Bitcoin got more and more popular, it created a whole mining industry around itself. To facilitate this, industry manufacturers came up with ASICs (Application Specific Integrated Circuits), which are machines designed specifically for Bitcoin mining. These are generally much more expensive than CPUs and GPUs, are more power-hungry and very loud, but provide excellent hash rates for mining.