Bitcoin mining refers to a peer-to-peer computational process that is used for securing and verifying Bitcoin transactions. These transactions are payments which are made among users in a decentralized network. Transactions are verified and then added to public ledgers which are called blockchains; this is also how new Bitcoins get released. People having access to the Internet and mining hardware can start to mine Bitcoin on their own.
How does Bitcoin mining take place?
Every group of transaction is called block. These blocks are then made secure by the miners and they are built one on top of another to form a chain. This ledger of transactions is referred to as the blockchain. It will confirm transactions to the remaining network. Mining involves compiling the recent transactions in blocks and solving a difficult computing puzzle. The miner who can solve the block first will be able to place the g block on this blockchain and he can claim rewards. The rewards basically act as incentives for the miners.
The amount of the new Bitcoins which are given away with every mined block is referred to as the block reward. This reward gets halved after every 21,000 blocks and this takes about 4 years. The rewards started in 2009 at 50 and came down to 25 in 2014 and is going to reduce continuously. Mining difficulty gets adjusted every 2016 blocks, or, in about two weeks time. When more computing power is used, difficulty will increase making the mining harder. When the computing power is decreased, the reverse happens.
How mining takes place
The blockchain is basically a series of blocks and miners will have to use special software for solving mathematical problems to confirm legal transactions or blocks and then make new Bitcoins. New transactions get added after every 10 minutes. Hash rate refers to numbers of calculations the hardware will make each second in its effort to solve the mathematical puzzle. The higher this hash rate, the greater chances the miner has of solving the transaction and get a reward as Bitcoins.
What makes mining difficult is the design aspect. Normally, mining time on an average will be 10 minutes for every block and when this is lesser, the mining becomes tougher. There are in all 21 million Bitcoins which can be mined after which miners have to close shop till the time the rules of this system get changed to accommodate bigger supplies. Mining is profitable because miners get rewarded with fixed coins and transaction payments for the work they have done. But, the hardware uses up a lot of energy in the process and this means very high costs.
Earlier, Bitcoin mining was carried out by using CPUs from the standard personal computers. As Bitcoin became popular, GPU usage became more dominant. Finally, hardware called ASIC or Application Specific Integrated Circuit came about specifically for Bitcoin mining. These were launched in 2013 and these have been consistently enhanced since then with more and more efficient designing. Using the recent ASICs mining can be done seamlessly and profitably. But, when you use the CPU or GPU or ASIC for mining Bitcoins, the energy costs outweigh the revenues.
Why is it better to join a mining pool for Bitcoin mining?
This explains why people involved in mining Bitcoins prefer to work in groups. Teamwork will make it easier to solve mathematical problems too. Bitcoin mining is much like mining gold because like gold, there is a limit on the number of Bitcoins that can be mined. Earlier the miners were mainly cryptographic enthusiasts. But, as the value of Bitcoins rose, people started to see Bitcoin mining as a very lucrative business opportunity. They are now investing in hardware and warehouses to mine as much Bitcoins as they can. Warehouses are usually installed in areas where electricity or power costs are lower.
In the recent years there has been a huge amount of mining power online and this makes it very hard for individual miners to solve a block on their own to get the rewards. In order to compensate this, mining pools came about. These mining pools are basically groups of individual miners that may contribute to block generation. They then split rewards according to the computing power they have contributed. When you are in a dilemma about whether or not to be part of a mining pool you must realize that it is helpful in the long run. When you go solo, the chances of getting rewards is less but you will not have to share the payouts. When you join a mining pool instead, your chances of getting a reward become higher although the rewards may be less. So, you need to join a mining pool to enjoy a steady income flow.
When you are keen to mine Bitcoins without the trouble of managing the mining hardware on your own you can choose to sign up with Bitcoin cloud mining services. Here, you can get access to processing power from remote data centers. You simply need a home computer, a Bitcoin wallet etc to get started. Cloud mining for Bitcoins is advantageous because you do not to bear additional electricity costs or buy equipments to mine.