The largest mining holding of the cryptocurrency universe has a market cap of over 5 billion US dollars, which is more than many traditional mining companies. But Wait. How is making that much money out of a virtual coin that only exists within our phones and computers even possible? And how do you mine something that does not physically exist?
To answer this question and comprehend the creation of value in cryptocurrencies, we need to dive into the basics of Bitcoin mining.
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What’s Bitcoin mining?
Since the beginning of time, humans have been mining for resources. It’s the way we are able to get gold, iron or copper. And it’s also the way we create Bitcoins, though the process is not nearly similar.
Bitcoin (BTC) mining is a digital process which verifies the transactions and seals them to avoid double spending when introducing new Bitcoins into circulation. It involves thousands of computers solving complex mathematical problems by using sophisticated hardware and software to verify and make transactions immutable in the Bitcoin blockchain, a virtual ledger in which every operation is stored.
Every time one of these operations is completed, new Bitcoins are issued in return. This BTC protocol requires a lot of energy. As energy cannot be duplicated, it computes the algorithm which seals the transactions. Somebody willing to revert a transaction would need to bring at least 51% of the energy consumed by the network.
Mining is an essential part of the BTC ecosystem. It involves operating with the Bitcoin blockchain, the decentralized structure that has been key for the coin’s success. It seals the transactions making them immutable and, at the same time it generates new Bitcoins. Miners validate transactions and maintain the blockchain, ensuring its integrity and chronological order.
The process works as it follows. Miners put their computing power to work in the Bitcoin network. They perform calculations in order to be the first to guess a 64-digit hexadecimal number known as a nonce. The successful miner is rewarded with freshly-mined Bitcoins and transaction fees.
An algorithm regulates how difficult it is for the miners to mine a certain block. As there will be a maximum of 21 million Bitcoins in circulation by design and the number of miners has increased over the years, that algorithm has been increasing mining difficulty.
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What’s the reward for the miner?
Nowadays, miners need to purchase expensive hardware equipment in order to successfully complete the operations, such as top application-specific integrated circuits (ASICs). While ASICs reach tens of thousands of dollars, miners also need to pay the electricity bill.
Such economic effort needs to be compensated. Each time miners solve a block, they get rewarded through two components: a payment of freshly created Bitcoin and transaction fees paid by users for including their transactions in the block.
The payment in Bitcoins have been decreasing over the years. Mining one block in 2009 would earn the miner 50 BTC. In 2012, the amount was halved to 25 BTC, four years later, to 12.5 BTC, and in 2020, to 6.25 BTC. The reward will halve again in April 2024, decreasing to 3.125 BTC. This comes from the fact that by design the BTC is limited to 21M, in reaction to infinitely printing money. Therefore, new coins cannot be introduced forever at the same rate.
BTC Circulation in 2009
Source: Bitcoin protocol
Bitcoin was designed for a massive adoption which, combined with scarcity, would increase the coin’s value over the years. That’s why even though the reward has decreased, mining Bitcoin is still very lucrative. At the current price of Bitcoin, mining one block would get the miner over 300,000 euros. Besides, a larger adoption leads to larger transaction fees, so rewards will continue increasing in the long run.
But it’s also important to highlight that it’s a risky business: the miners that try to solve the block, but can’t succeed, get nothing.
The value of Bitcoin halving
Scarcity is a key part of Bitcoin’s design, so Bitcoin halving has been a condition of the Bitcoin protocol since the very beginning. It requires the BTC block reward to be halved every 210,000 blocks. It happens approximately every four years and it’s one of the most important events in the crypto calendar.
The reason it is so important is that it is the mechanism used to limit inflation, which is the main purpose of BTC, ensuring that the supply of new Bitcoin decreases over time. Once all the 21 million BTC are mined (around the year 2140), there won’t be more halving events and the miners will stop getting Bitcoin rewards for solving blockchain blocks. However, they will still be able to earn compensation through transaction fees.
Beyond rewards and halving events, BTC mining is a key element of the Bitcoin universe. It’s the process that helps keep the integrity and security of the Bitcoin blockchain.
They perform calculations in order to be the first to guess a 64-digit hexadecimal number known as a nonce. The successful miner
miner
A miner is a person who extracts ore, coal, chalk, clay, or other minerals from the earth through mining. There are two senses in which the term is used. In its narrowest sense, a miner is someone who works at the rock face; cutting, blasting, or otherwise working and removing the rock.
What math problems are Bitcoin miners actually solving? Bitcoin miners solve “math problems” using the Proof of Work consensus mechanism. The whole process involves finding a nonce, which when hashed with the SHA-256 algorithm, produces a value that meets a difficulty level set by the Bitcoin network.
Thus, the set of points of an elliptic curve with the sum operation also has abelian group structure. The cryptographic algorithm used in the bitcoin and the blockchain is based on the discrete logarithm for elliptic curves on finite fields, which is similar to the discrete logarithm in a finite field.
Bitcoin uses a military-grade encryption algorithm called Secure Hash Algorithm 2 (SHA2). Bitcoin miners are awarded BTC when they find a random number that can only be generated by running the hashing algorithm over and over again.
Miners are guessing a number that is lower than the target hash. The target hash is a hexadecimal number set to require an average number of attempts. Miners make these guesses by adding nonces to the information being hashed.
Mining a Bitcoin depends on your energy rate per Kwh, it costs $11,000K to mine a Bitcoin at 10 cents per Kwh and $5,170K to mine a Bitcoin at 4.7 cents per Kwh. Learn how and if mining right for you in 2024! As Bitcoin's price goes up, so do the miners' prices.
How Long Does It Take to Mine 1 Bitcoin? The reward for mining is 3.125 bitcoins. It takes the network about 10 minutes to mine one block, so it takes about 10 minutes to mine 3.125 bitcoins.
Currently, Bitcoin mining is legal in the United States and the majority of other countries. However, you may want to research local laws where you live.
Like all forms of currency, Bitcoin is given value by its users, supply, and demand. As long as it maintains the attributes associated with money and there is demand for it, it will remain a means of exchange, a store of value, and another way for investors to speculate, regardless of its monetary value.
The value of Bitcoin (BTC), unlike traditional fiat currencies such as the Euro or the U.S. Dollar, is not determined by a centralized authority like a central bank. Instead, Bitcoin's price is determined based on supply and demand. Bitcoin has a supply cap where no more than 21 million BTC will ever exist.
It is highly unlikely that an individual or group could create an algorithm to mine Bitcoins faster than the current Bitcoin algorithm. The Bitcoin algorithm, known as SHA-256, is a highly secure and complex cryptographic function that is designed to be extremely difficult to solve.
Bitcoin is the largest crypto by market capitalization and the most popular cryptocurrency to mine, with a reward of 6.25 BTC per block - although this halved in April 2024. Due to competition, you'll need a top-of-the-line mining rig to mine Bitcoin successfully, as well as to join a mining pool.
Examples of popular mining algorithms include SHA-256 (used by Bitcoin), Ethash (used by Ethereum), and CryptoNight (used by Monero). These algorithms determine the rules and requirements for miners to contribute their computing power and earn rewards through newly minted coins.
The resources required for mining Bitcoin include: At least one specialized computer (called an Application-specific Integrated Circuit or ASIC miner) designed to compete for and support a particular cryptocurrency. A reliable and inexpensive energy supply. A dependable internet connection.
After all 21 million bitcoin are mined, which is estimated to occur around the year 2140, the network will no longer produce new bitcoin. The block subsidy will go to zero but miners will continue to receive transaction fees, which will make up an ever greater portion of the block reward.
Cryptocurrency mining can be detected in the network. Machine learning can be employed to detect mining services automatically. Dedicated web application collects IP addresses and service availability of various mining pool servers.
The best GPU for bitcoin mining utilizes this algorithm. With SHA-256, miners must convert the 256-bit hash into a 64-character output. The first miner to achieve this receives the reward.
Process mining algorithms are sets of mathematical rules used to discover process models from business systems using data mining techniques. Process mining algorithms allow you to map the true state of business processes, identify bottlenecks and efficiencies, and improve your business processes in a data-driven way.
The algorithms used to make a bitcoin address from a public key are the Secure Hash Algorithm (SHA) and the RACE Integrity Primitives Evaluation Message Digest (RIPEMD), specifically SHA256 and RIPEMD160. where K is the public key and A is the resulting bitcoin address.
Introduction: My name is Wyatt Volkman LLD, I am a handsome, rich, comfortable, lively, zealous, graceful, gifted person who loves writing and wants to share my knowledge and understanding with you.
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