Bitcoin mining requires excellent care, is costly, and occasionally rewarding. Investors are still interested in this process due to the rewards miners get. For every successful mining, a crypto token is rewarded. If you incline technology, mining can be a way to get bitcoin without investing money in it.
The miner who becomes the first to solve a complex hashing puzzle receives a reward with bitcoin. Finding the solution before others depends on the people investing in mining power in the network. The rewards are given when they successfully verify transactions that constitute a “block.” After a complete block is validated, it is added to the blockchain. Bitcoin evolution platform is a trading platform that is making users rich.
The bitcoin rewards work as incentives for miners to keep them motivated to indulge in the process of mining. As Bitcoin is a decentralized digital currency, mining ensures that the blockchain technology runs smoothly and securely. No central authority controls the functioning of cryptocurrencies, so miners are spread worldwide to confirm each transaction’s validity.
How are Bitcoins Mined?
There are two criteria to earn bitcoins:
• You verify up to 1MB of transactions
You must first get the right answer or closest answer to the complex mathematical problem. In the cryptocurrency world, this is also called proof of work. To find the right answer to a numeric problem, no advanced computation is involved. Miners are not required to solve the mathematical problems;
they only need to be the first to generate a 64-digit hexadecimal number, called “hash”, which is very close or equal to the target hash. Having an excellent guessing power is an add-on advantage.
As it entirely depends on guesswork, the number of possible guesses is enormous. To win the race, miners require a computing power whose “hash rate” is very high.
• Set up a bitcoin mining rig
Initially, bitcoin mining could have been approached as a hobby. It only required regular domestic computers. It was later upgraded to needing graphic cards, but now any of these will not be efficient. The mining of bitcoins has been upgraded to a high powered setup.
Specially designed hardware for mining needs to be brought into effect. Mining requires ASIC (Application-Specific Integrated Circuit) chips to increase your speed and consume less energy. This is an expensive setup, and the manufacturing process is slow. But this is the only way to become the first one solving hashes and winning bitcoins. The most powerful machine has the capacity of solving 14 terahash in one second. It means that it attempts 1012 times to guess the right answer in one second.
A miner also needs to verify bitcoin transactions that should add up to 1MB. It is important to note that everyone who confirms 1 MB of transactions only becomes eligible to earn bitcoin. Not all of them receive bitcoins.
• Get a bitcoin wallet.
A personal bitcoin wallet is where you will transfer all your bitcoin earnings. Although coins are technically stored in the blockchain, wallets help you manage your bitcoins’ addresses.
Each bitcoin address comprises a public key and a matching private key. The public key is a combination of characters, including alphabets and numbers. You may also relate it to a bank account number. For Bitcoin exchanges, the person sending you coins will require your public key. The addresses are deliberately kept public so that they can trace every transaction you make back to one address.
However, a private key is personal to every bitcoin holder. It is used to send off coins. If the private key is stolen or forgotten; you lose your bitcoin forever, so make sure your private key is safe.
• Join a mining pool
With the popularity of bitcoin rising, mining is made complicated to keep the network safe. Sometimes even using the best ASIC miner is not enough to successfully mine a bitcoin. A single machine falls weak while competing with large mining farms spread all across the world. What can make this process profitable is joining hands with other miners and creating a mining pool?
Computing powers from different miners in a group are accumulated to speed up hashing, and reward is distributed among the members. The income is low but guaranteed regularly. However, the operator of the pool charges a certain fee from the members.
• Install Mining Software on your computer
Mining software gets you introduced to the blockchain and bitcoin network. The software monitors your actions and demands results. It assigns you to work, collects it after completion, and adds the information to the blockchain. It also gives you statistics of your performance like cooling, hash rate, temperature, and average mining speed.
• Start with Mining
After installing the mining software, fill in the required information regarding your wallet and mining pool. Choose a device and start mining.
Mining is not only meant to keep the bitcoin ecosystem secure and reward miners. Mining is the process of how a new bitcoin is released into circulation. It can also say that miners are employed for “minting” digital currency. There are currently 18.5 million bitcoins circulating in the cryptocurrency market. The existence of each bitcoin is the work of miners. The bitcoin network would not wither away without miners, but there will be no new coins added.
As the Bitcoin Protocol has set a limit of 21 million bitcoins to be circulated, bitcoin mining will eventually end. The solution to this has also been designed by the mastermind behind this cryptocurrency, Satoshi Nakamoto. The rate of bitcoins mined is reduced every four years, so a point where no more bitcoin needs to be mined will not arrive until the year 2140.
Even after mining new bitcoins stop, miners will be required to validate transactions and keep the integrity of the network in check.
How much a miner earns?
The network is designed to reduce the number of bitcoins awarded to the miner to half every four years. The mining process started in 2009, and anyone who successfully mined one block was rewarded 50 bitcoins. In 2012, this was reduced to 25. The last halving was done in November of 2020. The current number of bitcoins earned by miners is 6.25.
Risks of Bitcoin Mining
• Selfish mining
As bitcoin uses the proof of work consensus mechanism, there is an underlying threat to that. With mining pools rising to power, they can impact significant mining ratios, giving way to selfish mining. This can also be called block withholding. The members of a pool can contribute their computational power to successfully mine a block but hide it from other miners instead of broadcasting it to the blockchain.
Then move onto a second block while others stay unaware of it. If they successfully find another block, the withholding of two blocks from being broadcasted makes the forked chain the longest. The selfish miners get all the rewards while others stay behind. Selfish mining on a large scale can grow to become a Sybil Attack that can cause considerable harm to the whole process of mining by invalidating transactions on the network.
• 51 Percent Attacks
51 Percent attack is a security breach in the bitcoin network, but it is not easy to carry out. This is a misuse of the gathered computational power of mining pools. They can become powerful to have command over 50% of the mining power. They manipulate transactions by mining ‘invalid’ blocks or indulge in double-spending.
As bitcoins do not physically exist, double-spending is a severe concern. The technology is becoming sturdier to avoid such threats. It is a benefit attackers want from spending the same coin twice.
Let’s say, Mark, purchases some goods from Annie and makes a transaction in bitcoin. At the same time, Mark can execute a similar transaction to another bitcoin address using the same coin. Annie gets notified of receiving the bitcoin and doesn’t bother to confirm. While the other bitcoin address is credited with the currency, Annie suffers an invalidated transaction.
• Security Risks
Miners who are desperate to gain from bitcoins often use public Wi-Fi networks. Such an incident happened at a coffee shop in Buenos Aires. Their Wi-Fi connection got infected with malware as other users used it for mining. It showed a delay of 10 seconds while logging. This phenomenon is also called “cryptojacked.”
Mining is a profitable business only if the worth of bitcoins you gain exceeds the costs associated with the process. To solve the problem successfully, expensive equipment is required. The processing needs a massive amount of electrical power to generate numerous nonce’s to get to the solution. In current situations, mining individually is highly unprofitable. Joining a mining pool to distribute the expenses is the only smart way.