Bitcoin has been capped to a total supply (fixed) of 21 million and 90% of the supply is already in circulation. Have you ever wondered how digital cash like Bitcoin is brought into circulation? It doesn’t need complex tech know-how to understand that Bitcoin or any crypto for that matter is not printed out like fiat cash money. Rather, Bitcoin is brought into supply through a process called mining. Bitcoin mining primarily serves two purposes. Read more about buying and selling system.
The key purpose is to validate transaction data on new blocks as it is linked to the blockchain. The second purpose of Bitcoin mining is to generate new Bitcoins which is termed as “minting” in crypto jargon.
It must be noted here that mining is exclusively restricted to cryptos that have been developed on Proof-of-Work blockchain platform. As Bitcoin is a PoW coin, the Bitcoin blockchain banks on the mining process.
What constitutes Bitcoin mining?
What is exactly meant by Bitcoin mining and what does it involve?
Well, Bitcoin mining is a process where miners have to solve computational puzzles to find the right hash. The term “hash” in Bitcoin mining refers to a lengthy 64-digit hexadecimal figure. To solve the puzzle, a miner has to find a hash that is either equivalent or closer to the specific target hash. It’s somewhat like the card game “Blackjack” or “21”. This whole process of solving the mathematical equation to derive the right hash is called Proof-of-Work. The Bitcoin blockchain platform rewards miners with new coins whey they are able to find the right hash.
There are two major things that you must know about Bitcoin mining. One, the PoW mathematical puzzles are extremely complex. Increase in the level of complexity is directly proportional to the number of miners joining a mining session. The range of difficulty in Bitcoin mining has only increased over the years. The other factor is, to earn the Bitcoin mining rewards you have to be the first miner to solve the PoW puzzles.
The whole process of attaining the right hash is mostly based on guesswork. Yes, you heard it right. Faster you can come up with the closest guess, the better would be the possibility of Bitcoin mining rewards.
Significance of Bitcoin mining
We have already touched the two main reasons for which we need Bitcoin mining.
The blockchain technology needs to verify the transaction data on every new block before connecting it to the existing chain. It helps to detect discrepancies in the data stored (if any) so that corrective steps can be taken before it’s too late. Most importantly, the Bitcoin mining process helps to detect the glitch of “double-spending”. Blockchain features an immutable ledger. It means, any data recorded in the chain cannot be modified or tampered with once it has been added to the chain. Thus, the Bitcoin blockchain network needs thorough verification of every new block to ensure that the blockchain is recording only the correct and most authentic information. In that light, it won’t be exaggerating to claim that Bitcoin miners are, essentially, auditors of new blocks.
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The other factor, as it has already mentioned before, Bitcoin mining is the only way to generate new Bitcoins.
The concept of halving
The discussion about Bitcoin mining will remain incomplete without the mention of “halving.”
The process of halving bears close connection with Bitcoin mining rewards. Ever since the launch of Bitcoin, the Bitcoin block reward is reduced by 50% after every 4 years. As of 2022, Bitcoin mining rewards stand at 6.25 BTC.
How do you perform Bitcoin mining?
There are various mechanisms to mine Bitcoin.
CPU mining mines Bitcoin through regular computer processors. But, this method of Bitcoin mining is fast getting oblate as it is unable to match up with demand of blazing speed in the contemporary mining scenario.
GPU Bitcoin mining is performed through the help of GPU mining rigs that comprise of advanced graphics card, motherboard, rig frame, cooling device, and processor.
The most advanced of all Bitcoin mining processes, ASIC mining executes BTC mining through a dedicated mining rig. Also known as Application-Specific Integrated Circuits rigs, these mining rigs are exclusively meant for Bitcoin mining. As a result, they are always way faster compared to other mining methods mentioned above.
If you are planning to set up an ASIC rig, make sure to check the hash rate. The top-rated ASIC machines offer around 90 to 100 th/s. However, these machines might command an exorbitant price- you can get more affordable ones in the market. Just make sure, the hash rate of your chosen ASIC rig is no less than 14-20 th/s.
However, ASIC Bitcoin mining rigs are extremely costly and also consume more volume of power compared to CPU and GPU mining. This high power consumption glitch has sparked serious environmental concerns about ASIC mining.
Thus, don’t forget to check the level of electricity consumption while buying an ASIC rig. Look for the ones that assure comparatively lower volume of consumption compared to regular counterparts.
- Mining pool
If ASIC rig setup is too expensive for you, you can always join a mining pool. These pools conduct the mining process through the mining resources of multiple miners from all around the world. On one hand, the process is economical- on another, with multiple people working towards one particular problem, the problem gets solved faster than solo Bitcoin mining.
But, always remember, in the mining pool, the reward is always divided among all the participants.
- Cloud mining
Cloud mining companies use both GPU and ASIC mining rigs. They offer their mining resources on rent against a specific fee. You will get free cloud mining plans but they generally come at the cost of mining speed. Go for the paid ones as they offer the best experience.
Bitcoin mining after 2041
It has been estimated that the total 21 million supply of Bitcoin would be minted out by 2041. Does that mean a complete end to Bitcoin mining? Well, Bitcoin mining will continue forever, as long as the Bitcoin blockchain exists. Yes, after 2041, no new Bitcoin coins will be generated- but mining will continue to verify each new block that will be added to the Bitcoin blockchain.