What is mining for Bitcoin?
Bitcoin mining is the process which actually creates new bitcoins by solving extremely difficult math problems with powerful computers in order to verify transactions on the Bitcoin blockchain. When the new bitcoin is successfully mined, the bitcoin’s miner will receive a pre-determined amount of Bitcoin for the work which helped secure the bitcoin network. As time goes on Bitcoin becomes more difficult to mine, as more miners compete with each other and the Bitcoins themselves are programmatically more difficult to mine as they become more scarce.
How does Bitcoin mining work?
Bitcoin mining works similar to mining for gold or other precious metals. Whereas precious metal miners will uncover gold, silver and diamonds that will be released into circulation for purchase, Bitcoins miners do the same exact thing by releasing new Bitcoins into circulation as they are created or mined. The tools used for bitcoin mining vary from precious metals however rather then excavators and sluice boxes, bitcoins miners use powerful computers with high processing power in order to solve the complex equations which come in the form of cryptographic hashes.
A hash is simply a shortened or truncated digital signature of a chunk of data. Hashes are a one way encryption tool, in order to decrypt the hash to its input data every single possible combination is tested until the result matches the given “hash”. This is what bitcoin miners do, they process trillions of hashes per second with their powerful computer processing power until they find a hash that provides a condition called “difficulty.”
Difficulty changes with every 2016 Bitcoin block – which is usually about two weeks time. This helps bitcoin maintain a constant block time, which is how long it takes for miners to locate each new block. The has itself works as an identifier for any specific block and contains data from the block it resides in. Bitcoin defends against hacks and intrusions as any alteration of a block would cause the hash to be different or changed, and following blocks would have different hashes as well. Mining nodes would see the differences in the expected hash and reject it, therefore protecting the Bitcoin (BTC) blockchain from any possible intrusion.
Bitcoin uses proof-of-work consensus protocol to power its network. It does require high powered computers and large amounts of electricity to power the network. However it appears nearly impossible to infiltrate the Bitcoin network without creating enough hash power and using enough electricity to recreate the entire mining power of Bitcoin. This would cost billions of dollars to do and would take an enormity of unified efforts and resources which seems extremely unlikely.
How do you mine Bitcoins from home
When Bitcoin fist was created, it was relatively easy to mine the cryptocurrency coin from home as the computer power on a standard computer was more then enough to compete with other miners. As the Bitcoin network grew, the calculations or equations required to mine Bitcoin become more complex and require higher and higher computer power and electricity. Eventually there were specific machines designed to maximize their Bitcoin mining prowess named “Application Specific Integrated Circuit” (ASIC) machines. Currently the most popular ASIC machine vendor is Bitmain, they also offer training resources and a mining calculator to predict profitably.
These machines can be used by home users to mine for Bitcoin but as Bitcoin become more scarce and mining difficulty increases, the machine hardware usually grows obsolete relatively quickly, also it can be very difficult to turn a profit after equipment costs and electricity costs. The only way to stay ahead of the electricity cost curve is to invest in higher power machines, and possibly more of them.
If you are planning on mining Bitcoin from home please consider the following items:
- The cost of the mining equipment or ASIC machines
- Electricity costs in your area and per your machines
- The time it may take to recover from your initial investments
- The price of BTC as it will impact your profits
- How often you may need to upgrade or replace your mining machines.
Alternative (altcoin) cryptocurrencies to mine instead of Bitcoin
As we do not suggest mining specific cryptocurrency coins, we do however recommend researching which proof of work cryptocurrencies offer the lowest difficulty rates and the highest price before making your altcoin mining decisions.
The prices and difficulty rates will change over time so what works this month, may not make sense next month. The good news is you can typically use your same mining equipment and just change the application you are running to mine a completely different cryptocurrency coin in a few minutes time.
Smaller market cap altcoins will usually have the easier difficulty rates and this will make it easier to mine for them in a shorter period of time. Just as with Bitcoin mining, make sure to study your electricity and cost of equipment ratios before jumping into altcoin mining as it can be difficult to turn a profit.