How does bitcoin mining work? Bitcoin (BTC) is still a gold mine for many people. After falling dramatically for the last few months in mid-2021, the bitcoin price is returning and recapturing its position in the cryptocurrency market. Satoshi Nakamoto created 21 million bitcoins at the beginning and predicted that by 2140, all bitcoins would have their owner. As of 9.2021, miners own 18.8 million bitcoins, and 2.2 million remains are available worldwide waiting for high-quality miners. Do you want to enter this market? If so, let Hanfincal figure out what you’ll need to get started and devise an intelligent strategy to own them.
1. What is bitcoin mining?
Bitcoin mining is the process of obtaining it through using computers to solve cryptographic equations. This process entails validating data blocks and adding transaction records to a blockchain, which is a public record. In other words, bitcoin mining is a transactional process that employs computers and cryptographic operations to solve complex functions and record data to a blockchain. As a reward, miners receive bitcoins after performing the successful cryptographic work to add new transactions to the ledger.
Before mining bitcoin, you should be familiar with its typical characteristics – decentralized and distributed systems:
1.1. Decentralized systems
- There is no central authority or centralized ledger, as in traditional banking.
- Bitcoin uses a decentralized ledger called a blockchain.
- Anyone can connect to and participate in the cryptocurrency system.
- Payments can be sent and received without going through a central bank.
1.2. Distributed systems
- A public record (ledger) of all transactions is kept and stored on numerous computers.
- Bitcoin employs cryptographic algorithms to verify transactions instead of relying on a central banking system.
2. What do you need to mine bitcoin?
More than 2 million bitcoins remain unclaimed as of September 2021. It was much easier to mine bitcoin on the days of its launch than now. Because bitcoin and the blockchain were still in their infancy, overcoming all of the challenges to receive bitcoin is very appealing to conquering hobbyists.
However, as the price of bitcoin rises, mining becomes more popular. It should be more challenging and piqued for investors and miners. Moreover, people use Bitcoin as a form of payment for goods and services. As a result, mining has become a highly competitive endeavor, with increasingly sophisticated hardware and software requirements for bitcoin mining.
Today, bitcoin mining necessitates the use of specialized equipment, such as:
2.1. Bitcoin wallet
A Bitcoin wallet is a software application/program that runs on a mobile/PC platform, web-based, or hardware device.
It stores, preserves, and transfers Bitcoin (BTC). At this point, the Bitcoin wallet is very similar to a regular bank account.
Desktop wallets, web wallets, mobile wallets, and hardware wallets are the most common.
2.2. Bank account with internet banking
After you’ve set up a Bitcoin wallet, you’ll need to set up a bank account with Internet Banking to conduct transactions and transfer money quickly.
2.3. Configuration of the computer
Bitcoin mining necessitates a powerful computer configuration and Bitcoin running software. The higher the VGA configuration or the more powerful and modern the ASIC chip, the faster the Blockchain algorithm can be processed.
- Main: Choose main lines that support multiple PCI slots. And the number of GPU slots is four or more.
- CPU: Choose powerful CPU lines specializing in graphics processing and exceptionally compatible with the Main you have chosen.
- RAM: Miner RAM recommended 8GB
- ROM: ROM requires at least 250GB; you can equip SSD memory to save power when operating.
- PSU(Power): Power needs at least 1000W or more.
Before you can understand how bitcoin mining works, you must first understand what a hash is. This is a specialized term used in bitcoin mining:
Hashing is the process of turning any length of input data into a fixed-length output string, and Hashing is done through a hash function.
A hash function, in general, is any function that can map data of arbitrary size to fixed-size values. The values created by the hash function are called the hash value, hash code, hash message, or simply “hash.”
That means, no matter how big or small your input is, the output will always be of a fixed length. That is especially important when dealing with large amounts of data and transactions. Instead of processing the entire input data set, you only need to process and track a tiny amount of data as hashes.
Transactions of varying lengths are hashed in the blockchain using a specific hashing algorithm, which produces a fixed-length output no matter the length of the input transaction. That makes it easier to track transactions when retrieving and tracking back hashes. The size of the hash is based on the hash used.
3. Bitcoin mining methods
You can mine bitcoin mining in a variety of ways. Conduct your research to determine which method is best for you:
|Bitcoin mining methods||Cloud Mining||Hardware Mining|
|Definition||That is a type of indirect mining that takes place through an intermediary organization. This organization will set up and maintain the mining rigs, and your job will be to sign up and purchase their mining contracts.||That is a type of mining in which you must directly spend money to equip the necessary mining tools such as excavators, network systems, and facilities.|
|Pros||● No need to invest in equipment
● Can be exploited without waiting for setup
● Cheaper maintenance cost compared to hardware mining
● Hash rate is constant as specified in the contract
|● Improve your grasp on the bitcoin market – a direct Bitcoin miner.
● Flexibly adjust output, volume, and mining target
●The initial cost is cheaper than cloud mining.
|Cons||● High initial cost
● Scam risk when investing in scam organizations
|● A lot of extra costs: Maintenance fee, electricity bill, etc. Therefore, it requires significant capital and can withstand pressure when the production cost is several times higher than the mining price in one year.
● Must have specific knowledge in this field to be able to invest
● Mining speed depends on the system’s quality, and normally the lifetime of the miner is not long (less than two years).
4. How does bitcoin mining work?
Creating a bitcoin wallet
You can’t mine unless you have a Bitcoin wallet. There are two types of cryptocurrency wallets: cold wallets (stored by hardware devices) and hot wallets (electronic wallets). However, when it comes to bitcoin mining, owning a cold wallet is the best option due to its high-security features and ability to store large amounts of BTC safely.
Create a bitcoin mining system
The system, in this case, consists of the following components: the site, the electrical system, the network, and the bitcoin miners.
ASICs (Bitcoin miners) are specialized computers that are designed solely for Bitcoin mining. Don’t try to mine Bitcoin on a regular desktop or laptop because the profits won’t cover the electricity costs.
Choose a mining pool
Because mining BTC alone will be extremely difficult and not yield the desired profit, you must join a Mining Pool. You and other miners come together to share block rewards, and your hash rate in the collection will determine your share.
Install and use bitcoin mining software
A mining software will connect you to the pool and inform you of your hash rate in the mining pool. The software is now available for all operating systems, including Windows, Mac, and Linux.
Find a bitcoin exchange
When mining BTC, you may need to sell them to cover the fees. To save time, choose reputable exchanges with a high daily trading volume and fast speed.
5. Answer some frequently asked questions about cryptocurrency
How long does it cost to mine 1 Bitcoin?
Each block (has 6.25 BTC) takes 10 minutes to discover in theory. However, with potentially thousands of Bitcoin miners in operation, the chances of finding a block on your own are pretty low.
Which cryptocurrency is the easiest to mine?
When it comes to cryptocurrency mining, Ethereum is the first coin you should not overlook. It has a lighter algorithm than Bitcoin that is friendlier to miners and an ultimate guide to mining Ethereum for convenience.
Can I mine crypto on my phone?
Yes, it is an effective way. You can mine bitcoin with your Android device. However, using a mobile phone to mine crypto coins is not similar to how traditional mining software or hardware works.
After all, you may be understanding how bitcoin mining works. People’s current preference is for quick and easy transactions, and cryptocurrencies may eventually replace traditional forms of payment. However, mining bitcoin, and other cryptocurrencies in general, is currently a challenging task that requires more patience and perseverance. To read more bitcoin information, subscribe to HanFincal to get the latest things.
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