Bitcoin Mining -All you Need to Know

Bitcoin Mining is simply a process by which transactions are verified and added to the public ledger (blockchain), it can also be seen as a means in which new Bitcoins are created. Bitcoin mining is quite a competitive business, this is because new miners are always coming in with new strategies that could displace the old ones. Bitcoin miners are always up to date with the recent mining tools and knowledge. Most times people are been advised to ascertain feasibility studies and know if bitcoin mining will actually profit them.

You could simply carry out your feasibility studies by using a Bitcoin mining calculator, all you need to do is to enter the data of the Bitcoin miner you plan to purchase, it will display how long it will take you to recover your capital and then make profit. In Bitcoin mining, recent transactions are gathered together in one block and solved. It’s basically a mathematical thing where transactions are been analyzed and disbursed accordingly. Any miner who gets to solve the mathematical expression (puzzle) gets to place the next block on the blockchain and claims some reward in form of Bitcoin.

Where do Miners make their money from?

Miners get compensated or rewarded from those transaction fees that are normally charged while sending Bitcoin. If you are conversant with Bitcoin.  You must have observed that whenever you send Bitcoin, you will be charged a transaction fee. This transaction fee goes to any miner that helps to verify and confirm Bitcoin transactions. Miners also get paid when they mine new blocks.

Why do people Mine Bitcoin?

Most people tend to go into mining because by mining you get to earn cryptocurrency without staking your money. Notwithstanding you mustn’t get crypto through mining, you can choose to buy from exchanges such as Remitano or Ngexchanger.

Outside making money from mining, mining is actually one of the most important aspects of every cryptocurrency. This is because mining is simply the only way to release new Bitcoin or other altcoins into circulation. If I am to relate the mining activity with that of Central Bank (Central Bank of Nigeria), I will say miners are minting currency.

The fact is that Bitcoin mining will eventually come to an end one day because the maximum amount of Bitcoin that can be mined is about 21 Million and as of today more than 16 Million Bitcoin have been mined.

What Will Happen When all 21 Million Bitcoins are Mined?

Bitcoin is limited in supply. However, unlike gold, the amount of bitcoin that is left to be mined is known. The question now is what happens when all the 21 million bitcoins are mined, how will miners earn since we need them to verify and confirm our transactions. There is no direct answer to this question. When all bitcoins are mined, miners may be discouraged from mining and give up mining; this mined lead to the centralization of bitcoin control me the miner that stick behind. Another this that could happen is that there might be an increase in the bitcoin transaction charge – this will keep miners in business but increases transaction charge might make users look for alternative cryptocurrency with cheaper transaction charger.   Anyways we do not need to worry about that now, all bitcoin is expected to be mined by the year 2140. This is over 100 years from now, anything could happen mining chips could be developed that could be installed in mobile devices, smart TVs, computers etc. that can keep mining cost negligible and keep bitcoin transaction cost low. We just have to wait till then to find out. You can click here to read more on what might happen.

Is Bitcoin Mining Profitable?

At the initial stage when Bitcoin was first mined, I miners actually earned a lot when they mine one Block (Bitcoin are mined in units called blocks). However, from the bitcoin protocol, the reward earned per block is halved every 4 years. As of 2009 miners could earn 50 BTC from mining one Block. This halved in 2012 to 25 BTC per Block. It also halved to 12.5 BTC in 2016 and we expect it to halve to 6.25 BTC by 2020. This information and the next halving time can be gotten at http://www.bitcoinblockhalf.com

Bitcoin Clock

What Amount of Bitcoin Blocks have been mined?

Bitcoin statistics is ever present online for all to see, the block height, the next halving, the market cap, daily transaction, amount of bitcoin in circulation etc are available for all to see. To get this information, go to http://www.bitcoinblockhalf.com. You can also see the height of Bitcoin in Bitcoin wallets such as coinomi, Blockchain etc. Presently we are at block # 498376. In some wallets, they call it height 498376.

Why do Miners help in Confirmation of Transactions?

When we talk about transaction confirmation, the importance of miners in this section can never be overemphasized. Miners are the backbone. Miners are just like auditors, they ensure that a particular Bitcoin is not been spent twice (i.e duplicated) by the same person. This might sound confusing but see this illustration. Mr A has 50 Naira and wants to buy chocolate with it from Mr B, once he buys the chocolate that 50 Naira is no more his but Mr B’s.

To illustrate this in bitcoins. You have to know what blockchain is. Blockchain can be said to be a public ledger i.e a record containing the bitcoin available and the wallet address where they are held. So if Mr A buys chocolate with 0.001btc from Mr B. Mr A’s 0.001btc will be sent to Mr B. The miners will record that 0.001btc was subtracted from Mr A’s wallet address and sent to Mr B’s wallet address. The record of this transaction is distributed to all the thousands of bitcoin nodes around the world (anyone can set up a node, you can set up a node in your house). This record makes up the blockchain. So it will be impossible for Mr A to manufacture and spend an already spent 0.001btc. Even if he has a bitcoin node and alters the record in his own node to show that he still has the 0.001btc, it will be invalid. Because the record of this transaction is present in thousands of other Bitcoin nodes to prove that he does not have that bitcoin. This is more like trying to reprint an Oxford dictionary and changing the definition of a word there. People will know that it is fake because their are thousands of other Oxford dictionaries around the word to prove that it is fake.

At the end of every 10 mins, all the transaction that occurred in that period will be grouped into a block and a new block is started. Miners currently earn 12.5btc from each block when a miner verifies transaction(s) worth 1 MB (megabyte) as designed by Satoshi Nakamoto.

Can a miner verify transactions without earning?

Yes, it is possible for a miner to verify transactions and end up earning nothing. There are two criteria for a miner to  be qualified to earn Bitcoin

  • Firstly you have to verify a transaction worth 1 MB
  • Secondly, you have to be the first miner to get the correct solution to a numeric problem. We call it Proof of work.

When I say the right answer to a numeric problem, I simply mean you have to be the first miner to generate (this is done by guessing) a 64-digit hexadecimal number that is equal or less than the target hash. You will need a lot of computing power for you to actually beat other competitors (miners). Hash rate could be measured in Megahashes per second (MH/S), Gigahashes per second (GH/s) or Terahashes per second (TH/s).

What are the tools for mining?

Mining tools are relatively a bit expensive although its price varies according to its capacity. They could cost about $500 to tens of thousands. A graphic processing unit (GPU) or an application-specific integrated circuit (ASIC) processing units can be comfortably used for mining Bitcoin ( The processing speed of one ASIC is greater than the processing speed of 500 supercomputers combined). Below is a GPU Bitcoin mining rig.

How do I increase my chances of getting the target hash faster?

I will suggest you join a mining pool. A mining pool creates an environment where numerous miners come together and combine their hash power to maximize their chances of getting the correct target hash. At the end of the day, miners in a mining pool share their profits accordingly. You could also maximize your chances by getting a fast mining rig.

 

Comments (2)

  1. Buhari Musa 4th June 2018

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