Have you ever thought where do bitcoins come from? The fiat currency is printed and circulated by the central government of the country. But when it comes to Bitcoin, there is no involvement of any government or financial institution. So, from where these digital coins come into circulation? The answer to this question is “Mining”.
Bitcoin mining is the process through which new coins are generated. Unlike traditional currencies such as the dollar or euro that are issued by central banks, Bitcoin is produced by miners. But, what mining is and how it works? Let’s find out!
What is Bitcoin Mining?
Like the U.S. dollar is backed by the Federal Reserve, similarly, Bitcoin is backed by millions of computers across the world called “miners.” This network of computers is spread out across the world and record transaction data in a public list that can be accessed by anyone. When someone makes a purchase or sale using bitcoin, it’s known as a “transaction.” The process of adding transaction records to Bitcoin’s public ledger is known as Bitcoin mining.
The mining experts solve complex mathematical equations to keep the Bitcoin network stable, safe and secure. In return for securing and verifying the network, miners are rewarded new bitcoins every 10 minutes. Bitcoin mining is the process of creating bitcoin through mathematical processes. Bitcoin mining essentially performs multiple functions, including the issuance of new bitcoins, confirming transactions, and securing the network. So, mining produces new bitcoins, as well as make the network trustworthy and secure, by verifying its transaction information.
At the time of writing, the reward for completing a block is 12.5 Bitcoin. For instance, if the current price of Bitcoin is $3,000 per Bitcoin, you could earn (12.5 x 3,000) $37,500 for solving a block. The reward amount keeps on decreasing. At the time of its launch in 2009, the reward amount was 50 BTC. This was halved to 25 BTC in 2012 and 12.5 BTC in 2016. By 2020, this reward size will be again halved to 6.25 BTC. Miners, thus, verify transactions and thereby help to prevent the “double-spending problem.”
How to Mine Bitcoin?
The bitcoin network contains a public ledger of all transactions called the blockchain. Bitcoin is mined in units called “blocks” and each block in the public ledger contains a proof of work to be considered valid. The process of mining makes the bitcoin nodes secure and tamper-resistant.
When Bitcoin was introduced by Satoshi Nakamoto, it could be mined on computer CPUs. But now, for mining Bitcoin, you need high-powered computers and special software to solve complex computational math problems. With the rising complexity of the mining algorithms, it has become necessary to use high-power miners. You may use a GPU (graphics processing unit) miner but it’s best to get an application-specific integrated circuit (ASIC) miner. The ASIC miners are designed specifically for mining bitcoins. Once you get your mining hardware, you can go for solo mining, join a mining pool, or opt for colocation.