What Is Bitcoin Mining?

Bitcoin is a 澳洲幸运5官方开奖结果体彩网:digital currency that uses a process called mining to secure its network and validate transactions. Bitcoin mining is a network-wide competition to generate a cryptographic solution that matches specific criteria. When a correct solution is reached, a reward in the for🌠m of bitcoin and fees for the work done is given to the miner(s) who reached the solution first.

This reward process continues until 澳洲幸运5官方开奖结果体彩网:all 21 million Bi🤡tcoins a♍re circulating. Once that number is reached, the mining process is expected to cease, and Bitcoin miners will be rewarded through fees paid for the work done.

How Does Bitcoin Mining Work?

Here's a simplified example of the mining process. Say you ask friends to guess a number between 1 and 100. Your friends don't have to guess the exact number; they just have to be the first to guess a number less than or equal to your number. If you think of the number 19 and a friend comes up with 21, another 55, and yet another 83, they lose because they all guessed more than 19. But they get to guess again, and the next guesses are 16, 41, and 67. The one who guessed 16 wins because they were first to guess a number less than or equal to 19.

In this caseꦏ, the number you chose, 19, represents the target hash the Bitcoin network creates for a block, and the ran🌠dom guesses from your friends are the guesses from the miners.

Bitcoin mining is the same thing but at a much larger scale. It uses cryptography, encryption, distributed computing, and technology to verify and secure transactions. H🥃ere are the main ideas behind mining that make it work.

The Hash

At the heart of Bitcoin mining is . The hash is a 64-digit hexadecimal number that is the result of sending the information contained in a block through the SHA256 hashing algorithm. This part of the process takes little time to complete—in fact, you can generate a hash in under a second, pasting some content into an online SHA256 hash generator. This is the encryption method used by Bitcoin to create a block hash. However, decrypting ✨that hash back to the content you pasted is the difficult part: a 64-digit hash can take centuries to decode with modern hardware.

For example, here's a hash for the previous paragraph run through a hash generator:

a54f83a5db7371eeefa2287a0ede750ac623e49a8ba29f248eb785fe0a678559

If you change one value in that content, like switching one "t" to an "a," the hash changes. Here is the same paragraph, but the first word is misspelled as "Aa" instead of "At":

fbfa33ff980d1492b3a9275a1eb945d89bd6b699ca19c3c470021b8f253654af

This is the number called the block hash, which is used in the next block's header as part of the information run through encryption. Each block uses the previous block's hash, which acts to chain them together. This is where the term "blockchain" came from.

Target Hash

The 澳洲幸运5官方开奖结果体彩网:target hash, used to determine mining difficulty, is the number miners are trying to solve for. This number is a hash generated by the network𒐪.

Sܫo, a block hash might look lik𓃲e this (block 786,729):

00000000000000000005a849c28eb24b8a5e04fcecc1ccb3eb2998e4730a456e

The target hash looked like this:

0x175c739

This number is a compacted represe🐷ntation of the difficulty target:

0...000005c73900000...0

So, miners needed to generate a number equal to or less than the above number.

Mining

Bitcoin mining requires the mining program to generate a hash and append another number to it called the nonce, or "number used once." When a miner begins, it always starts this number at zero. The nonce changes by one every attempt—first, it's 0, then 1, 2, 3, and so on. If the hash and nonce generated by the miner are more than the target hash set by the network, the attempt fails, and the miner tries again. Once the nonce reaches about 4.5 billion, it rolls over like an odometer, using another counter called the extra nonce from another field.

Every miner on the network does this until a hash and nonce combination is created that🧜 is less than or equal to the target hash. The first to reach that targe✃t has their proposed block added to the chain, receives the reward and fees, and a new block is opened. Once that block fills up with information (about one megabyte), it is closed, encrypted, and mined.

澳洲幸运5官方开奖结果体彩网:The Bitcoin network is made up of thousands of devices that mine 24 hours per day. Because the mining reward goes to the first to solve the problem, they are all competing. This competition led miners to create pools to gain an advantage over other miners because they needed more computational power to increase their chances of❀ winning.

Proof-of-Work

The mining process is what you may have heard called 澳洲幸运5官方开奖结果体彩网:proof-of-work (PoW)—the work done to generate the winning hash is viewed as proof the min🤪er validated the tran💝sactions in the block, so it's called proof-of-work.

PoW is also sometimes called a consensus mechanism, but proof-of-work is only part of consensus. Consensus is achieved after the miner adds the block to the blockchain, and the rest of the network validates it using the hashes (reaching consensus). This doesn't require much energy or computational power because each mining node also does this while mining the latest block. As new blocks are added, the network confirms them.

Confirmation

Each block contains the hash of the previous block—so when the next block's hash is generated, the previous block's hash is included. Remember that if even one character changes, the hash changes and the hash of each following block will change.

When you mine a block and close it, it isn't yet confirmed. The block isn't considered confirmed until five blocks later when it has gone through six total validations. With that said, it is possible to alter information in a block before reaching six validations, but it is highly unlikely because the person or group attempting to make the change must own a majority of the nodes to 澳洲幸运5官方开奖结果体彩网:control the network.

Rewards

The reward for successfully validating a block is Bitcoin. In 2009, you'd receive 50 bitcoin for mining a block. But the block 澳洲幸运5官方开奖结果体彩网:reward is halved every 210,000 blocks (roughly every four years), so in 2013, the reward amount declined to 25, then 12.5, then 6.25. At Bitcoin's last halving event in April 2024, the reward changed to 3.125.

Another incentive for Bitcoin miners to participate in the process is transaction fees. In addition to rewards, miners also receive fees from any transactions contained in that block. When Bitcoin reaches its planned limit of 21 million (expected around 2140), miners will be rewarded with fees for processing transact꧂ions that network users🦩 will pay. These fees ensure that miners still have the incentive to mine and keep the blockchain network going. The idea is that competition for these fees will cause them to remain low after halving events are finished.

Difficulty

Mining difficulty is how much work it tꦚakes to generate a number less than the target hash. Mining difficulty changes every 2,016 blocks or ✅approximately every two weeks. The next difficulty level depends on how efficient miners were in the preceding cycle and how many miners are participating.

Bitcoin's network increases and decreases the hash rate (the amount of computing power) needed to mine the cryptocurrency. The more miners there are competing for a solution, the more difficult the problem will become. If computational power is taken off the blockchain network, the difficulty adjusts downward to make mining easier. This is done to keep block times averaging about 10 minutes.

The difficulty level for mining on Dec. 4, 2024, was 103.919 trillion. That is, the chances of a computer producing a hash below the target is 1 in 103.919 trillion. To put that in perspective, you are about 355,644 times more likely to win the Powerball Grand Prize with a single lottery ticket than you are to generate the correct hash on a single try.

What Are the Economics of Mining Bitcoin?

Bitcoin mining is a business venture. Profits generated from its output—bitcoin—depend on the investment made in its inputs.

There are three main costs involved in Bitcoin mining:

• Electricity: This is the power that runs your mining systems 24/7. Mining can run up a substantial bill. The process (network-wide) consumes as much electricity as certain countries. It's also important to 澳洲幸运5官方开奖结果体彩网:consider the costs of cooling the area your mining systems are in. They produce a lot of heat, and the more units you have, the more cooling you will require. Air conditioning costs further increase the electricity bill.
• Mining systems: Contrary to the popular narrative, desktop computers and regular gaming systems can be used to mine by joining a mining pool. But the returns are limited because most pools split the rewards based on the amount of work each miner contributes. These systems cannot compete with the 澳洲幸运5官方开奖结果体彩网:ASIC mining machines, but it is possible to come out a few hundred dollars ahead after accounting for the energy used. If you want to be competitive, you'll need to buy several ASIC miners and join a pool—which can set you back between $4,000 to $12,000 per rig. The faster a machine mines, the more it will cost.
• Network infrastructure: Network speeds do not significantly affect the Bitcoin mining process, but latency does. Latency is the amount of time it takes to communicate with the rest of the network. Also, mining farms require multiple internal connections to connect each mining rig to a main router or server with a connection to the internet. However, if you're using your gaming rig to mine and join a pool, you shouldn't need any extra bandwidth—just low latency to the pool you joined.

The total costs for these three inputs should be less than the output—in this case, Bitcoin's price—澳洲幸运5官方开奖结果体彩网:for you to generate profits from your venture. Considering the fluctuating—and often rising—Bitcoin price, the idea of minting your own cryptocurrency might sound like an attractive proposition.

But given the economic difficulties of Bitcoin mining, you may have to resign yourself to accepting lower profits and a longer timeframe to break even, after purchasing 澳洲幸运5官方开奖结果体彩网:equipment to participate in the lottery that Bitcoin has become.

History of Bitcoin Mining

Two developments have contributed to the evolution and composition of Bitcoin mining as it is today. First, custom manufacturing of mining Bitcoin machines acted to centralize the networ꧒k. Because Bitcoin mining is essentially sequential guesswork, arriving at the right answer before another miner has almost ever🍸ything to do with how fast your devices can produce hashes.

In the early days of Bitcoin, desktop computers with ordinary CPUs dominated Bitcoin mining. However, they began taking a long time to discover the solution on the blockchain network as the algorithm's difficulty level increased with time. According to some estimates, it would have taken "several hundred thousand years on average" using CPUs to find a valid block at the early 2015 difficulty level.

GPU Mining

Over time, miners realized that graphics processing units (GPUs), or graphics cards, were more effective and faster at mining. But they consumed a lot of power and weren't designed for heavy mining. Eventually, manufacturers had to limit their mining because the increase in demand for GPUs made their prices skyrocket and decreased availability for other types of users.

ASIC Mining

Many miners now use custom mining machines, called Application-Specific Integrated Circuit (ASIC) miners, equipped with specialized chips for faster and more efficient Bitcoin mining. They cost anywhere from se♋veral hundred to tens of thousands of dollars. Today, Bitcoin mining is so competitive that it can only be done profitably with the most up-to-date ASICs. But even with the newest unit at your disposal, one is rarely enough to compete with mining pools and large Bitcoin mining operations.

These mining operations𒆙🐎 are like large data centers full of mining-specific computers. The amount of computations they can perform is staggering—hundreds of trillions per second.

Issues With Bitcoin Mining

Between one in 103 trillion odds, scaling difficulty levels, and the massive network of users verifying transactions, one block of transactions is verified roughly every 10 minutes. But it's important to remember that 10 minutes is a goal, not a rule.

Speed

The Bitcoin network can currently process between three and six transactions per second, with transactions logged in the blockchain about every 10 minutes. By comparison, Visa claims it can process about 65,000 transactions per second. Second-layer solutions and upgrades to the Bitcoin blockchain have att🧸empted to address speed issues, but modern banking networks and other🧜 blockchains still dwarf the number of transactions the Bitcoin network can handle.

Scalability

The main issue at the heart of the Bitcoin protocol is scaling—the blockchain's ability to handle more work efficiently. Though Bitcoin miners generally agree that something must be done to address scaling, there is no consensus on how to do it.

Bitcoin has been adjusted by 澳洲幸运5官方开奖结果体彩网:introducing upgrades and accepting input from layers that do much of the work off-chain, but it still has issues with 澳洲幸运5官方开奖结果体彩网:scalability. When making adjustments, blockchain is surrounded by three central concerns: decentralization, security, and scalability. With currentꦿ technology, one cannot be changed without affecting another. For example, if the Bitcoin blockchain were altered so🌟 that it could scale more effectively, it would likely decrease security and increase centralization.

Energy Use

Not surprisingly, in an age where all endeavors should have their environmental impacts evaluated and adjusted, 澳洲幸运5官方开奖结ꦏ果体彩网:B🦂itcoin mining's astronomical energy costs have drawn attention and criticism. Bitcoin's competitive proof-of-work mechanic is what causes it to use so much energy. According to some estimates, the blockchain's mining process consumes as much electricity as some small countries.

For most of Bitcoin's short history, its mining process has remained energy-intensive. In the decade after it was launched, Bitcoin mining was concentrated in China, a country that relies on fossil fuels like coal to produce a majority of its electricity. But crackdowns in China forced miners to move their operations elsewhere.

According to research done by the University of Cambridge, the majority of Bitcoin mining operations are now centered in the United States. Of the nearly 38% of global Bitcoin mining activity conducted in the U.S., more than 62% is concentrated in four states: Georgia (30.76%), Texas (11.22%), Kentucky (10.93%), and New York (9.77%). This means that four states make up more than 23% of the world's Bitcoin mining energy use and, theoretically, its hashing power.

Hashing power is how fast a computer, miner, or network can generate solutions (hashes) to the cryptographic problem. For instance, as of December 2024, the Bitcoin network had an average hashrate of more than 796 exa-hashes (quintillion) per second. That's 796 x 10¹⁸—or 796 followed by 18 zeros—hashes per second.

Avoiding Bitcoin Mining Scams

As with anything that involves money, Bitcoin and Bitcoin mining attract a lot of bad-faith actors. If you decide to begin mining, you'll need to look out for mining scams before picking the software, tools, or networks. Here are some the more common scams:

• Cloud Mining Platforms: These are websites that claim to rent mining power to customers. Not all of these services are scams, but make sure you read reviews, talk to others, and conduct your due diligence before choosing one.
• Fake Wallets: Cryptocurrency wallets store your private keys. However, thieves can create fake wallets in an attempt to steal your keys. Make sure you use a reputable wallet provider.
• Fake exchanges: Many instances exist of people being contacted by fake exchanges via email and social media, where they are pressured or tricked into depositing funds.

There are other types of frauds and scams, but the best way to prevent falling victim is to never give your keys, seed phrases, or passwords to anyone. Additionally, don't put your trust in a person you've never met or a service that doesn't have a well-established reputation.

Investing in Bitcoin Mining Stocks

If you're interested in mining but don't want to become involved in the process or take the risks involved, you may consider investing in companies that mine Bitcoin. Some publicly traded businesses that own or are affiliated with Bitcoin mining are Hut 8 (NASDAQ: HUT), MARA Holdings (NASDAQ: MARA), and Clean Spark (NASDAQ: CLSK), but there are many others to choose from.

Keep in mind that stocks of these companies tend to be as or more volatile than Bitcoin itself.

The Bottom Line

Bitcoin mining is an energy-intensive process involving mining devices and software that compete to solve a cryptographic problem. The Bitcoin mining process also confirms transactions on the cryptocurrency's network. As an incentive to participate in the process, Bitcoin is awarded to those that win the competition.

Though individual miners using desktop systems played a role during the cryptocurrency's early days, the Bitcoin mining ecosystem is now dominated by large mining companies that run mining pools spread across many geographies. The astronomical amount of energy that the process requires has drawn concern and criticism.

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