How Does Bitcoin Mining Work?

Related Articles

Watch These Nvidia Stock Price Levels as Chip Export Curb Set to Hit Earnings

Nvidia Faces More Disruption From New China Export Curbs Than Expected, Morgan Stanley Says

Hertz Stock Soars as Billionaire Bill Ackman’s Pershing Square Discloses Stake

What is Bitcoin Scouring?

Cryptocurrency mining is painstaking, costly, and only sporadically rewarding. Nonetheless, mining has a magnetic appeal for many investors advantaged in cryptocurrency because of the fact that miners are rewarded for their work with crypto tokens. This may be because entrepreneurial founts see mining as pennies from heaven, like California gold prospectors in 1849. And if you are technologically inclined, why not do it?

However, before you sink the time and equipment, read this explainer to see whether mining is really for you. We will focus primarily on Bitcoin (all the way through, we’ll use “Bitcoin” when referring to the network or the cryptocurrency as a concept, and “Bitcoin” when we’re referring to a quantity of individual tokens).

The notify draw for many mining is the prospect of being rewarded with Bitcoin. That said, you certainly don’t have to be a miner to own cryptocurrency signs. You can also buy cryptocurrencies using fiat currency; you can trade it on an exchange like Bitstamp using another crypto (as an case, using Ethereum or NEO to buy Bitcoin); you even can earn it by shopping, publishing blog posts on platforms that pay users in cryptocurrency, or indeed set up interest-earning crypto accounts. An example of a crypto blog platform is Steemit, which is kind of like Medium except that operators can reward bloggers by paying them in a proprietary cryptocurrency called STEEM. STEEM can then be traded elsewhere for Bitcoin.

The Bitcoin compensate that miners receive is an incentive that motivates people to assist in the primary purpose of mining: to legitimize and superintend Bitcoin transactions, ensuring their validity. Because these responsibilities are spread among many users all during the world, Bitcoin is a “decentralized” cryptocurrency, or one that does not rely on any central authority like a central bank or sway to oversee its regulation.

How To Mine Bitcoins

Miners are getting paid for their work as auditors. They are doing the available of verifying the legitimacy of Bitcoin transactions. This convention is meant to keep Bitcoin users honest and was conceived by bitcoin’s come to grief, Satoshi Nakamoto. By verifying transactions, miners are helping to prevent the “double-spending problem.” 

Double spending is a scenario in which a bitcoin proprietor illicitly spends the same bitcoin twice. With physical currency, this isn’t an issue: once you hand someone a $20 restaurant check to buy a bottle of vodka, you no longer have it, so there’s no danger you could use that same $20 bill to buy lotto tickets next door. While there is the odds of counterfeit cash being made, it is not exactly the same as literally spending the same dollar twice. With digital currency, be that as it may, as the Investopedia dictionary explains, “there is a risk that the holder could make a copy of the digital token and send it to a seller or another party while retaining the original.”

Let’s say you had one legitimate $20 bill and one counterfeit of that same $20. If you were to try to dish out both the real bill and the fake one, someone that took the trouble of looking at both of the bills’ serial fews would see that they were the same number, and thus one of them had to be false. What a Bitcoin miner does is analogous to that—they obstruct transactions to make sure that users have not illegitimately tried to spend the same bitcoin twice. This isn’t a blameless analogy—we’ll explain in more detail below.

Once miners have verified 1 MB (megabyte) worth of bitcoin annals, known as a “block,” those miners are eligible to be rewarded with a quantity of bitcoin (more about the bitcoin repay below as well). The 1 MB limit was set by Satoshi Nakamoto, and is a matter of controversy, as some miners believe the block size should be expanded to accommodate more data, which would effectively mean that the bitcoin network could process and prove transactions more quickly.

Note that verifying 1 MB worth of transactions makes a coin miner eligible to net bitcoin—not everyone who verifies transactions will get paid out.

1MB of transactions can theoretically be as small as one transaction (though this is not at all stock) or several thousand. It depends on how much data the transactions take up.

“So after all that work of verifying transactions, I effect still not get any bitcoin for it?”

That is correct.

To earn bitcoins, you need to meet two conditions. One is a matter of effort; one is a matter of accident.

1) You have to verify ~1MB worth of transactions. This is the easy part.

2) You have to be the first miner to arrive at the right answerable for, or closest answer, to a numeric problem. This process is also known as proof of work. 

“What do you mean, ‘the straight answer to a numeric problem’?”

The good news: No advanced math or computation is involved. You may have heard that miners are resolving difficult mathematical problems—that’s not exactly true. What they’re actually doing is trying to be the first miner to emerge b be published up with a 64-digit hexadecimal number (a “hash”) that is less than or equal to the target hash. It’s basically guesswork.

The bad talk: It’s guesswork, but with the total number of possible guesses for each of these problems being on the order of trillions, it’s incredibly difficult work. In order to solve a problem first, miners need a lot of computing power. To mine successfully, you need to would rather a high “hash rate,” which is measured in terms of megahashes per second (MH/s), gigahashes per second (GH/s), and terahashes per second (TH/s).

That is a spectacular many hashes.

If you want to estimate how much bitcoin you could mine with your mining rig’s hash calculate, the site Cryptocompare offers a helpful calculator.

Mining and Bitcoin Circulation

In addition to lining the pockets of miners and sustaining the bitcoin ecosystem, mining serves another vital purpose: It is the only way to release new cryptocurrency into circulation. In other suggestions, miners are basically “minting” currency. For example, as of Nov. 2020, there were around 18.5 million bitcoins in diffusion. Aside from the coins minted via the genesis block (the very first block, which was created by founder Satoshi Nakamoto), every one one of those Bitcoin came into being because of miners. In the absence of miners, Bitcoin as a network would noiselessness exist and be usable, but there would never be any additional bitcoin. There will eventually come a time when Bitcoin ransacking ends; per the Bitcoin Protocol, the total number of bitcoins will be capped at 21 million. However, because the reprimand of bitcoin “mined” is reduced over time, the final bitcoin won’t be circulated until around the year 2140. This does not common that transactions will cease to be verified. Miners will continue to verify transactions and will be paid in salaries for doing so in order to keep the integrity of Bitcoin’s network.

Aside from the short-term Bitcoin payoff, being a cash miner can give you “voting” power when changes are proposed in the Bitcoin network protocol. In other words, miners possess a degree of influence on the decision-making process on such matters as forking.

How Much a Miner Earns

The rewards for bitcoin veining are reduced by half every four years. When bitcoin was first mined in 2009, mining one block pass on earn you 50 BTC. In 2012, this was halved to 25 BTC. By 2016, this was halved again to 12.5 BTC. On May 11, 2020, the requital halved again to 6.25 BTC. In November of 2020, the price of Bitcoin was about $17,900 per Bitcoin, which means you’d qualify for $111,875 (6.25 x 17,900) for completing a block. Not a bad incentive to solve that complex hash problem detailed above, it strength seem.

If you want to keep track of precisely when these halvings will occur, you can consult the Bitcoin Clock, which updates this word in real-time. Interestingly, the market price of bitcoin has, throughout its history, tended to correspond closely to the reduction of new coins set into circulation. This lowering inflation rate increased scarcity and historically the price has risen with it.

If you are interested in bringing how many blocks have been mined thus far, there are several sites, including Blockchain.info, that command give you that information in real-time.

What Do I Need To Mine Bitcoins?

Although early on in Bitcoin’s history particulars may have been able to compete for blocks with a regular at-home computer, this is no longer the case. The discuss with for this is that the difficulty of mining Bitcoin changes over time. In order to ensure the smooth functioning of the blockchain and its power to process and verify transactions, the Bitcoin network aims to have one block produced every 10 minutes or so. No matter how, if there are one million mining rigs competing to solve the hash problem, they’ll likely reach a solution tighter than a scenario in which 10 mining rigs are working on the same problem. For that reason, Bitcoin is diagramed to evaluate and adjust the difficulty of mining every 2,016 blocks, or roughly every two weeks. When there is myriad computing power collectively working to mine for Bitcoin, the difficulty level of mining increases in order to keep clog production at a stable rate. Less computing power means the difficulty level decreases. To get a sense of just how much calculating power is involved, when Bitcoin launched in 2009 the initial difficulty level was one. As of Nov. 2019, it is more than 13 trillion.

All of this is to say that, in lawfulness to mine competitively, miners must now invest in powerful computer equipment like a GPU (graphics processing unit) or, more realistically, an application-specific blend circuit (ASIC). These can run from $500 to the tens of thousands. Some miners—particularly Ethereum miners—buy unitary graphics cards (GPUs) as a low-cost way to cobble together mining operations. The photo below is a makeshift, home-made mining tool. The graphics cards are those rectangular blocks with whirring fans. Note the sandwich twist-ties holding the graphics liable acts to the metal pole. This is probably not the most efficient way to mine, and as you can guess, many miners are in it as much for the fun and challenge as for the stinking rich.

The “Explain It Like I’m Five” Version

The ins and outs of bitcoin mining can be difficult to understand as is. Consider this illustrative model of how the hash problem works: I tell three friends that I’m thinking of a number between one and 100, and I write that slues on a piece of paper and seal it in an envelope. My friends don’t have to guess the exact number; they just have to be the chief person to guess any number that is less than or equal to the number I am thinking of. And there is no limit to how many concludes they get.

Let’s say I’m thinking of the number 19. If Friend A guesses 21, they lose because of 21>19. If Consociate B guesses 16 and Friend C guesses 12, then they’ve both theoretically arrived at viable answers, because of 16<19 and 12<19. There is no “premium credit” for Friend B, even though B’s answer was closer to the target answer of 19. Now imagine that I pose the “assume what number I’m thinking of” question, but I’m not asking just three friends, and I’m not thinking of a number between 1 and 100. More, I’m asking millions of would-be miners and I’m thinking of a 64-digit hexadecimal number. Now you see that it’s going to be extremely hard to speculate the right answer.

If B and C both answer simultaneously, then the ELI5 analogy breaks down.

In Bitcoin terms, simultaneous answers take place frequently, but at the end of the day, there can only be one winning answer. When multiple simultaneous answers are presented that are equal to or less than the object number, the Bitcoin network will decide by a simple majority—51%—which miner to honor. Typically, it is the miner who has done the ton work or, in other words, the one that verifies the most transactions. The losing block then becomes an “orphan hindrance.” Orphan blocks are those that are not added to the blockchain. Miners who successfully solve the hash problem but who haven’t validated the most transactions are not rewarded with bitcoin.

What Is a “64-Digit Hexadecimal Number”?

Well, here is an prototype of such a number: 

0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee

The number above has 64 digits. Easy enough to understand so far. As you probably spotted, that number consists not just of numbers, but also letters of the alphabet. Why is that?

To understand what these letters are doing in the middle of numbers, let’s unpack the word “hexadecimal.”

As you know, we use the “decimal” system, which means it is base 10. This, in turn, drearies that every digit of a multi-digit number has 10 possibilities, zero through nine.

“Hexadecimal,” on the other participation, means base 16, as “hex” is derived from the Greek word for six and “deca” is derived from the Greek word for 10. In a hexadecimal combination, each digit has 16 possibilities. But our numeric system only offers 10 ways of representing numbers (zero into done with nine). That’s why you have to stick letters in, specifically letters a, b, c, d, e, and f. 

If you are mining bitcoin, you do not need to calculate the total value of that 64-digit edition (the hash). I repeat: You do not need to calculate the total value of a hash. 

So, what do “64-digit hexadecimal numbers” have in the offing to do with bitcoin mining? 

Remember that ELI5 analogy, where I wrote the number 19 on a piece of paper and put it in a sealed envelope?

In bitcoin excavating terms, that metaphorical undisclosed number in the envelope is called the target hash.

What miners are doing with those titanic computers and dozens of cooling fans is guessing at the target hash. Miners make these guesses by randomly originating as many “nonces” as possible, as fast as possible. A nonce is short for “number only used once,” and the nonce is the key to bring into being these 64-bit hexadecimal numbers I keep talking about. In Bitcoin mining, a nonce is 32 bits in take the measure of—much smaller than the hash, which is 256 bits. The first miner whose nonce generates a hotchpotch that is less than or equal to the target hash is awarded credit for completing that block and is awarded the harms of 6.25 BTC.

In theory, you could achieve the same goal by rolling a 16-sided die 64 times to arrive at random slues, but why on earth would you want to do that?

The screenshot below, taken from the site Blockchain.info, might aid you put all this information together at a glance. You are looking at a summary of everything that happened when block #490163 was extracted. The nonce that generated the “winning” hash was 731511405. The target hash is shown on top. The term “Relayed by Antpool” refers to the the poop indeed that this particular block was completed by AntPool, one of the more successful mining pools (more about veining pools below). As you see here, their contribution to the Bitcoin community is that they confirmed 1768 transactions for this exclude. If you really want to see all 1768 of those transactions for this block, go to

What Are Coin Mining Pools?

Mining compensates are paid to the miner who discovers a solution to the puzzle first, and the probability that a participant will be the one to discover the solution is tally with to the portion of the total mining power on the network. Participants with a small percentage of the mining power stand a very petite chance of discovering the next block on their own. For instance, a mining card that one could purchase for a couple of thousand dollars pleasure represent less than 0.001% of the network’s mining power. With such a small chance at finding the next cube, it could be a long time before that miner finds a block, and the difficulty going up makes things regular worse. The miner may never recoup their investment. The answer to this problem is mining pools. Mining cartels are operated by 

Is Bitcoin Mining Legal?

The legality of Bitcoin mining depends entirely on your geographic location. The concept of Bitcoin can augur the dominance of fiat currencies and government control over the financial markets. For this reason, Bitcoin is completely unauthorized in certain places.

Bitcoin ownership and mining are legal in more countries than not. Some examples of places where it is prohibited are Algeria, Egypt, Morocco, Bolivia, Ecuador, Nepal, and Pakistan. Overall, Bitcoin use and mining are legal across much of the world.

Risks of Mining 

The risks of mining are that of financial risk and a regulatory one. As mentioned, Bitcoin mining, and mining in familiar, is a financial risk. One could go through all the effort of purchasing hundreds or thousands of dollars worth of mining equipment purely to have no return on their investment. That said, this risk can be mitigated by joining mining pools. If you are insomuch as mining and live in an area that it is prohibited you should reconsider. It may also be a good idea to research your territories regulation and overall sentiment towards cryptocurrency before investing in mining equipment.