- Bitcoin depends on mining to validate transactions, add new blocks, and mint new coins.
- The high cost of mining has limited individual participation and paved the way for professional mining pools and companies.
Cryptocurrencies have become an influential part of the digital world and global economy now, however, they have lately also been on stages of the world. They were discussed, debated, and argued not because of their contribution to presenting an alternative payment system that is transparent and trustless but because of their environmental concerns. A digital token is leaving an intense carbon footprint on this world and this fact can no longer be ignored.
Bitcoin networks depend on a Proof-of-Work consensus mechanism to validate transactions and include only authentic ones in the public ledger. For this several nodes called miners rely on strong computational hardware to solve a hard cryptographic problem in a process called mining. This was made necessary to eliminate trust and build a trust-less network. This was also necessary to solve the issue of double spending associated with digital coins. With physical money such as a $10 note, once the note is spent, it is not physically with you and hence can’t be spent again. However, with digital tokens, someone could easily make a copy of them and spend them instead of the original. Miners act as auditors who skim this public ledger from its genesis and make sure that the proposed Bitcoin is not spent earlier and get paid to do it. This is analogous to employing a man to check the serial number on currency notes. If two notes with the same number occur, then one must surely be counterfeit.
The miners are awarded in Bitcoins which are freshly minted in the network. In this regard, mining is the only possible way to mint new coins and put them into circulation. Without miners, no new coins will be minted. Bitcoin undergoes a process of halving where the mining reward is halved every four years. During its launch 50 BTC were awarded which gradually reduced to 25, 12.5, 6.25 (the present) and will become 3.125 in 2024. According to this data, the final Bitcoin will be minted around the year 2140.
Digging Up The Earth
The actual process of mining involves miners solving a computational problem. They are not advanced mathematics topics. Here, the actual math is not hard but tiresome. The aim is to generate a 64-digit hexadecimal hash that is not exactly equal but less than or equal to the target hash. A miner relies on trillions of such guesses and each correct guess earns a right to include the block in the blockchain and earn a block reward.
000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f
The above hash contains 64 digits and is hexadecimal. It is compared with the decimal system we are familiar with.To generate a hash, you need to roll a 16-sided cube (from 0-F) 64 times and do it trillion times until you are a miner. It is not humanly possible and that is why, miners depend on computer hardware to perform this task.Miners depend on Graphical Processing Units (GPU such as RTX 3080 of Nvidia), custom-built mining ASIC chips (Antminer S19 Pro, AvalonMiner 1246, or WhatsMiner M30S++), or the latest Field Programmable Gate Array (FPGA chips). However, if you are aware of their market, their prices have been skyrocketing which makes it impossible for individuals to purchase them.
After selecting the correct hardware, the user needs to install mining software such as Cudominer, CGMiner, and CoinIMP among many out there. Mining individually is not profitable because of the high competition from millions of other miners. Individuals usually join a mining pool, where several people put their resources together and have more chances in earning rewards. The rewards are split and ensure constant earning rather than an occasional chance in years. Popular mining pools are ANTPOOL, F2Pool, Pool BTC, and others.
Final Thoughts
Mining has become a professional business now with several companies participating on an enormous scale and investing in cheap electricity resources. It has also become a new source of income for several people. A Bitcoin mining calculator takes several inputs such as current hash rate, power consumption and cost, and maintenance costs into consideration. Based on the results, miners can make decisions. Recently, miners can also participate through cloud mining.
