Lesson 8: Bitcoin Mining

in #bitcoin • 7 years ago

In this lesson you will learn that mining is the process of adding and confirming transaction records to the blockchain. This process is how new Bitcoins are created. Mining therefore is a resource-intensive process due to competition for rewards. It has become more specialising that it is successfully done by specialized mining computers in large data centers around the world.

Blockchain Transactions

A quick recap from previous lessons. The blockchain operated by world nodes running the bitcoin software without central authority. The Bitcoin transactions are send to the blockchain network using readily available software applications. The network computers called nodes validate the transactions and add the to their copy of the public ledger and broadcast the ledger additions and get rewarded with new minted bitcoins every 10 minutes. The blockchain is a distributed and decentralized database. To achieve the independent verification of the chain of ownership of every bitcoin ever created (amount), the network computers store previous transactions output as new transaction inputs and dictates all input amounts values to the new outputs. There is no one file with bitcoin in it. There are instead many records of transactions between different bitcoin addresses which specific amount balances that change (increase or decrease). The transactions and addresses and amounts are not encrypted. It is possible to search and browse and view every transaction amount and addresses ever added onto the blockchain from the start. The mining is the process of adding transaction records to the blockchain as new (blocks) every predetermined time (10 minutes). Bitcoin computers (nodes) verify and distinguish legitimate bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.

Mining Bitcoin

mining is designed to be resource-intenside (computation work) and increasing difficulty so that the number of blocks found each day by competing miner computers remains steady. The individual blocks must contain a proof of computational work to be considered valid. This computation proof of work is verified by other Bitcoin nodes each time they receive a new block. The primary purpose of mining is to allow the Bitcoin computers (nodes) to reach a secure, tamper-resistant consensus.
Mining is also an incentive for to produce new bitcoins into the system. A successful miner finds a new block is rewarded with newly added bitcoin plus transaction fees. The current reward amount is 12.5 (BTC) newly created bitcoins per each new block added to the blockchain. To claim the reward, a special transaction is called a "coinbase" is included in the block with the processed payments. All bitcoins in existence have been created via the coinbase transactions. The reason behind this design is to incentivise people to provide security to the system. The miners need to spend computational energy to find the difficult cryptographic solutions to new blocks.

Making Money Mining Bitcoin

When Bitcoin software was introduced, anyone could earn Bitcoins by mining using a common computer of laptop. Those early days are gone. The total computational power of the network has risen exponentially since the introduction of specialized machines designed to solve the Bitcoin Proof-Of-Work algorithm. Most current mining is taking place in a large factory like environments with hundreds of thousands of connected machines in places where electrical energy and cooling is cheap. Such as China and above the Arctic Circle. Those specialized bitcoin miner machines are superseded by new models usually within few months after purchase and their ability to compete on the bitcoin network and earning potential is greatly reduced along with their sale value. The average used has little incentive to mine noways, mining allows individuals to keep the network secure and decentralized. Many individuals mine bitcoin solely for the sake of contributing back to the network and keeping decentralized or just for fun. Another way to mine bitcoins is to rent hashing power from other specialized miners. This is called cloud mining. The individual can mine anywhere without needing the same hardware of the miner, for a cost. Mining pools of many individuals that decide to do cloud mining may not receive as many returns from the mining process. There are cloud mining scams. You can try cloud mining using Bitcoin cloud mining service.

Thank you for reading I hope this is hepful

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7 years ago in #bitcoin by
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     7 years ago  

    Very interesting...thank you.

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       7 years ago  

      Good read! Thanks for sharing

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