What is Bitcoin Mining and How Does it Work?

Bitcoin, ever since its worldwide launch in 2009, continued to grow in value and became one of the most popular cryptocurrencies of our time. At the time of writing this article, the value of one Bitcoin was equal to 6069.82 US dollars. Bitcoin and most other cryptocurrencies gain their value through mining. Let’s find out what is bitcoin mining all about.

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What is Bitcoin Mining?

The process of adding new transactions to the Bitcoin blockchain is roughly called Bitcoin mining. The purpose of bitcoin mining is to keep the blockchain secure and transactions maintained. There are professional (and casual) miners who contribute to the process of mining and earn tokens for their efforts.

A bitcoin miner makes calculations and solves complex mathematical equations on the blockchain in order to verify and add new transactions. These miners are rewarded bitcoins for every transaction verified and mathematical problem solved. The reward amount depends on factors like the complexity of the problem and the time consumed.

As you may know, there only exist 21 million bitcoins, which cannot be increased or reduced in number. Bitcoin tokens are not created or printed like fiat currencies, instead, they are launched in the market via the mining process.

Things to know about Bitcoin Mining

Important terms

Mining Pools: A mining pool is a group formed by two or more miners in order to make the mining process easier and more effective and get better results. The pool fee is the fee charged by a mining pool platform for its services.

Proof of Work: Since the mining applications are quite expensive, Proof of Work (PoW) is a concept which defines the calculations performed by a particular computer in the given time.

SHA-251: It is the mining algorithm upon which bitcoin blockchain works. It is a cryptographic algorithm that returns a ‘HASH’ value for every word passed through it.

HASH: It is the random string of numbers and letters produced by the bitcoin algorithm for every word fed through it. It represents the mathematical problem that the miners solve in order to earn bitcoins. The Hash rate is the rate at which mining is done.

Electricity rate: The rate at which electricity is consumed during a certain mining process. It is an important factor for calculating the profitability in mining.

Other important things:

• The more the miners, the more secure and reliable the blockchain.
• The more the miners, the more difficult it is to mine bitcoins.
• The less number of bitcoins mined means the higher market price of Bitcoin.

How does Bitcoin Mining process work?

The mining of bitcoins is usually performed by professional people, called miners, who make calculations and solve mathematical problems and equations to verify the transactions on the bitcoin blockchain. The mining process requires a lot of electrical energy as well as considerably powerful hardware, including computer devices and other equipment.

As we said earlier, the purpose of mining is to increase the security and strength of the Bitcoin blockchain. The more the miners, the more secure and reliable will be the network. The price of Bitcoin in the market also varies depending on its mining.

Only the first miner who successfully solves a particular problem to verify the block transaction is awarded a fixed amount of bitcoin. The block verified by the miner during the process is then added to the blockchain, which maintains the record of all the blocks which has been verified and added to it ever since the beginning. The update blockchain info is transmitted to all users of that particular blockchain.

Here’s how the mining process actually works:

• Every miner is given a block of recent transactions that need to be verified.
• The transaction must be verified such that its HASH value starts with a certain (predefined) number of zeros, which is also called mining difficulty.
• Let’s say that you get a transaction with a mining difficulty of two, i.e., you must find the HASH value that starts with two zeroes.
• This is done by taking a third random number and combining it with the existing value. We keep changing the number unless the combined HASH has two zeros at the start. This is the solution you have been looking for.

The actual bitcoin mining process is much difficult and complex and requires serious computation hardware in order to solve the complex equations.

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