How can you earn bitcoin mining
If you were to try to spend both the real bill and the fake one, someone that took the trouble of looking at both of the bills' serial numbers 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 check transactions to make sure that users have not illegitimately tried to spend the same bitcoin twice.
This isn't a perfect analogy—we'll explain in more detail below. Once miners have verified 1 MB megabyte worth of bitcoin transactions , known as a "block," those miners are eligible to be rewarded with a quantity of bitcoin more about the bitcoin reward 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 increased to accommodate more data, which would effectively mean that the bitcoin network could process and verify transactions more quickly.
What is Bitcoin Mining?
Note that verifying 1 MB worth of transactions makes a coin miner eligible to earn bitcoin—not everyone who verifies transactions will get paid out. It depends on how much data the transactions take up. That is correct. To earn bitcoins, you need to meet two conditions. One is a matter of effort; one is a matter of luck. This is the easy part. This process is also known as proof of work. The good news: No advanced math or computation is involved. You may have heard that miners are solving difficult mathematical problems—that's not exactly true.
What they're actually doing is trying to be the first miner to come up with a digit hexadecimal number a " hash " that is less than or equal to the target hash.
It's basically guesswork. The bad news: 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 arduous work. In order to solve a problem first, miners need a lot of computing power. That is a great many hashes. If you want to estimate how much bitcoin you could mine with your mining rig's hash rate, the site Cryptocompare offers a helpful calculator.
In addition to lining the pockets of miners and supporting the bitcoin ecosystem, mining serves another vital purpose: It is the only way to release new cryptocurrency into circulation. In other words, miners are basically "minting" currency. For example, as of Nov. In the absence of miners, Bitcoin as a network would still exist and be usable, but there would never be any additional bitcoin. There will eventually come a time when Bitcoin mining ends; per the Bitcoin Protocol, the total number of bitcoins will be capped at 21 million. This does not mean that transactions will cease to be verified.
Miners will continue to verify transactions and will be paid in fees for doing so in order to keep the integrity of Bitcoin's network. Aside from the short-term Bitcoin payoff, being a coin miner can give you "voting" power when changes are proposed in the Bitcoin network protocol. In other words, miners have a degree of influence on the decision-making process on such matters as forking.
The rewards for bitcoin mining are reduced by half every four years. When bitcoin was first mined in , mining one block would earn you 50 BTC. In , this was halved to 25 BTC. By , this was halved again to On May 11, , the reward halved again to 6. If you want to keep track of precisely when these halvings will occur, you can consult the Bitcoin Clock , which updates this information in real-time.
Interestingly, the market price of bitcoin has, throughout its history, tended to correspond closely to the reduction of new coins entered into circulation. This lowering inflation rate increased scarcity and historically the price has risen with it. If you are interested in seeing how many blocks have been mined thus far, there are several sites, including Blockchain.
Although early on in Bitcoin's history individuals may have been able to compete for blocks with a regular at-home computer, this is no longer the case. The reason for this is that the difficulty of mining Bitcoin changes over time. In order to ensure the smooth functioning of the blockchain and its ability to process and verify transactions, the Bitcoin network aims to have one block produced every 10 minutes or so. However, if there are one million mining rigs competing to solve the hash problem, they'll likely reach a solution faster than a scenario in which 10 mining rigs are working on the same problem.
For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining every 2, blocks, or roughly every two weeks. When there is more computing power collectively working to mine for Bitcoin, the difficulty level of mining increases in order to keep block production at a stable rate. Less computing power means the difficulty level decreases. To get a sense of just how much computing power is involved, when Bitcoin launched in the initial difficulty level was one. As of Nov. All of this is to say that, in order to mine competitively, miners must now invest in powerful computer equipment like a GPU graphics processing unit or, more realistically, an application-specific integrated circuit ASIC.
Some miners—particularly Ethereum miners—buy individual graphics cards GPUs as a low-cost way to cobble together mining operations. The photo below is a makeshift, home-made mining machine. The graphics cards are those rectangular blocks with whirring fans. Note the sandwich twist-ties holding the graphics cards 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 money. The ins and outs of bitcoin mining can be difficult to understand as is. Consider this illustrative example of how the hash problem works: I tell three friends that I'm thinking of a number between one and , and I write that number 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 first 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 guesses they get. Let's say I'm thinking of the number There is no "extra credit" for Friend B, even though B's answer was closer to the target answer of Now imagine that I pose the "guess 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 Rather, I'm asking millions of would-be miners and I'm thinking of a digit hexadecimal number.
Now you see that it's going to be extremely hard to guess the right answer. In Bitcoin terms, simultaneous answers occur frequently, but at the end of the day, there can only be one winning answer. Typically, it is the miner who has done the most work or, in other words, the one that verifies the most transactions.
The losing block then becomes an " orphan block. Miners who successfully solve the hash problem but who haven't verified the most transactions are not rewarded with bitcoin.
- Is Bitcoin Mining Still Profitable?.
- What is bitcoin mining?.
- How Does Bitcoin Mining Work?.
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Well, here is an example of such a number:. The number above has 64 digits. Easy enough to understand so far. As you probably noticed, 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. Unlike paper currency, which is printed by governments and issued by banks, bitcoins do not come in any physical form. That creates a major risk, as hackers could theoretically create bitcoins from nothing.
Bitcoin mining is how the bitcoin network keeps its transactions secure. Bitcoin transactions are secured by blockchains , which make up a public ledger of transactions. Because of how blockchain transactions are structured, they're extremely difficult to alter or compromise, even by the best hackers. But in order to secure these transactions, someone needs to dedicate computing power to verifying the activity and packaging the details in a block that goes into the bitcoin ledger.
And that's precisely what bitcoin miners do. As a reward for doing the work to track and secure transactions, miners earn bitcoins for each block they successfully process. The bitcoin founders have set a limit of 21 million bitcoins available for mining. Once that total is reached, miners will still be able to benefit from transaction fees, but they won't be granted bitcoins as a reward for their work. As of mid-January , approximately Assuming the bitcoin mining industry doesn't change dramatically, it looks like we won't hit the 21 million-bitcoin limit until the year During the early days of bitcoin mining, miners would often download a software package designed to allow their computers to process bitcoin transactions in the background.
Unfortunately, that's no longer practical, because solving bitcoin transactions has become too difficult for your average computer to manage.
What Kind of Data Does Bitcoin Use?
The bitcoin network is designed to produce a certain number of new bitcoins every 10 minutes. If only a few people are bitcoin mining at any given time, then the network will be generous and share bitcoins readily in order to reach the predetermined number. But now that bitcoin mining has become so widespread, the network has become much stingier about handing out bitcoins to miners.
In order to control how frequently bitcoins are generated, the network requires miners to solve more and more difficult problems to confirm transactions -- which means that miners must have more and more powerful equipment just to keep up. These days, in order to have a chance at being profitable, miners need to adopt one of two approaches: 1 buy specialized hardware aka a bitcoin mining rig or 2 join a cloud mining pool.