Over the years, Bitcoin mining has become a lot more difficult. In the initial days of cryptocurrencies, almost anyone with access to a laptop could simply mine new coins. They would receive a reward of 50 BTC upon verifying a new block of transactions upon completing some complex mathematical problems. At that time, this block reward may only have been valued at $50 and no one could have predicted how much the crypto would eventually be worth. But, nowadays, mining bitcoins is not that straightforward. Every few years, block rewards are halved, which means that the number of BTCs entering a rotation has been reduced to 6.25 Bitcoin per block.
Nevertheless, BTC transactions have to be still verified, which means those transaction fees are a crucial source of income for miners. Let’s take a close look at Bitcoin mining and exactly what is involved in it.
How Transactions Occur on the Bitcoin Network
The blockchain maintains complete transaction records of Bitcoin, starting from when the first block was mined back in 2009. A chain of blocks has been made over the years, which means editing past transactions is not possible. If anyone wanted to amend the previous transaction data, it would mean having to calculate every single block that came after and this would require a huge amount of computing data. The biggest benefit of a public ledger is that it can prevent double-spending, which means that the same Bitcoin cannot be used twice.
The Process of Mining Bitcoins
Every 10 minutes, a new block can be created, which means that Bitcoin miners are involved in intense competition for receiving a block reward about six times in an hour. A lot of computing power is required for mining Bitcoin and the individual who is able to solve a complex mathematical problem before the rest of the network will be able to validate a block. When the puzzle is solved, it means a new block is formed and its size is about 1MB. Bitcoin transactions that are waiting for confirmation are then collected from a mempool.
It is likely that the Bitcoin miner will prioritize Bitcoin users who are ready to pay high fees when it comes to their block of transactions. The new block also comprises of what is known as ‘coinbase transaction’. That’s how the 6.25 BTC reward is collected by Bitcoin miners for their efforts, along with the transaction fee of every payment that’s part of their block. This happens within 10 minutes and it is how Bitcoin mining works.
What is a Hash Rate?
How do you judge the health of the Bitcoin blockchain? This is where hash rate is used, as it is a look at how much processing power currently exists in the Bitcoin network. To put it simply, the HR (hash-rate) indicates the amount of computing power the miners are ready to spend for processing the block of transactions. The higher the hash rate, the more secure the blockchain. As crypto-mining is happening consistently and a new block emerges in every 10 minutes or so, there is a regular adjustment made to the mining difficulty, which is usually within two weeks.
If the hash rate was high and the mathematical problems to be solved for getting the rewards were too easy, then new bitcoins would become part of the circulation very quickly. Likewise, similar issues would be created by calculations that are too high.
What is a Bitcoin Mining Rig?
A mining rig basically refers to a high-end setup that has been specifically developed for mining new bitcoins. You can get the highest possible hash rates with state-of-the-art processing units, as this provides miners a greater possibility of being the first one to solve mathematical problems. A number of companies produce hardware for mining Bitcoin, but it is also possible for you to build your own as well. A major consideration to be made here are electricity costs, or else the cost of your energy consumption could end up outweighing any block rewards that you get.
When it comes to a Bitcoin mining rig, the primary elements that are involved are a motherboard, a resilient source of power supply, a reliable graphics card (AMD and Nvidia being two top choices), a dependable processor, a cooling solution for preventing your infrastructure from heating up and a robust frame for protecting the mining rig from dust and keeping it together.
Types of Mining Rigs
There are different types of mining rigs out there and each boast their own pros and cons. Some of the most common options that can be explored are:
Application-specific integrated circuit (ASIC) refers to devices that have been built with the primary intention of mining crypto and other cryptocurrencies. You can find this hardware in an array of forms and some of the kits are costlier than others. These are considered beneficial because they can deliver high levels of computing power while keeping the electricity costs low.
This mining method is widely used on the Litecoin blockchain and its purpose is to be an improvement, as compared to the SHA-256 hashing algorithm. When using Scrypt, miners have to generate random numbers as quickly as they can and then store them in a RAM location. This method is especially beneficial for miners who have GPUs and it can help in creating a level playing field because it reduces the advantage that ASIC miners have.
The most popular method amongst the mining farms is this one where graphic cards are used for mining data from the blockchain. Even though they are quite effective, it should also be noted that graphic cards can be quite expensive and can also become obsolete with changing standards. Plus, you also have to have access to cooling systems and access to electricity because graphic cards are high maintenance.
To put it simply, this involves mining Bitcoin from your computer, which makes it an inexpensive and simple approach, but it has also become impractical now. This method is now best for altcoins and in some cases, you can also come across mining software that runs in the background and uses spare computing power for minting crypto.
Alternatives you Can Explore
If you don’t feel like spending cash on such high-tech equipment, there are some alternatives you can explore. Mining pools are one such option because they involve combining your computing power with others, all in the attempt to verify a block. If you achieve success, the rewards are divided between everyone in the group. Another option you can explore is referred to as cloud mining where you don’t buy all the bitcoin mining equipment, but reach out to remote mining farms for buying processing power.
There are some legitimate ventures selling mining power, but you need to be cautious because there are some scams that also exist and you can end up losing your money. Apart from that, even though this option is low maintenance, you may be required to enter into a lengthy contract that involves a high monthly fee. This could eat into your profits and result in losses.
After you have understood the concept, you can decide whether you want to mine bitcoins or not.