Bitcoin mining is a procedure whereby transactions are certified and placed on the public ledger, or blockchain. This procedure is how new BitCoin (BTC) is launched. Anyone who has appropriate hardware and online access can take part in mining. The process of mining involves arranging new transactions into blocks, then attempting to solve a computational puzzle. Whoever manages to solve the puzzle first can put the next block onto the blockchain and earn a reward. These rewards give participants an incentive to mine and consist of the transaction charges linked to the transactions inside the block, along with newly launched bitcoin.
Shining the Spotlight on Mining Bitcoin
The quantity of bitcoin launched from a mined block is known as the block reward. This is halved after 210k blocks, usually every four years. In 2009, the block reward began at fifty. In 2014, it was halved to twenty-five and it will carry on decreasing. As a consequence of this reducing block reward, the total amount of bitcoin launched will approach twenty-one million.
The Difficulty of the Mining Puzzles
The difficulty level of the puzzles varies, depending on the amount of effort invested into mining throughout the P2P network. It is possible to adjust the difficulty level of mining, and this is done via the protocol after 2016 blocks, usually every fourteen days. The difficulty is adjusted to try to keep the block discovery rate stable.
Therefore, if extra computational power is used for mining, the difficulty level will increase to make it harder to mine. Similarly, the opposite occurs if less computational power is used on the network. The difficulty level decreases in this situation, to make it easier to mine.
The Evolution of Mining
When Bitcoin first emerged, mining was carried out using CPUs from standard desktop PCs. GPUs, or graphics cards, are better for mining than CPUs, so when bitcoin became more popular, GPUs were widely adopted.
Ultimately, hardware called ASIC (Application Specific Integrated Circuit) was created specifically to mine bitcoin. In 2013, the initial ones were launched and these have been subsequently enhanced, with more economical models entering the market. There is a lot of competition as far as mining goes, so today this is only possible using up to date ASICs. Now, with GPUs, CPUs and older ASICs, the electricity costs are so high as to render mining unprofitable via these methods.
How Bitcoin Started
Satoshi Nakamoto began developing bitcoin when he published the 2008 paper: ‘Bitcoin: A Peer to Peer Electronic Cash System’. This paper explained how people could use a bitcoin wallet on a P2P network, and verify transactions with a private key and digital signature.
Nakamoto highlighted that this process eliminated double spending problems (because digital currencies do not physically exist, using them in transactions does not remove them from a person’s possession). Since it was launched, several enhancements to bitcoin software have been suggested. Typically, these suggestions relate to boosting the quantity of transactions the network can deal with, either by making bitcoin blocks bigger or by streamlining the process.