What is Bitcoin Mining?
Understanding where Bitcoins actually come from will show how important miners are in the journey of cryptocurrency. U.S. dollars are printed and minted, but all available Bitcoin is pre-stored in the system to be extracted.
The term “mining” best describes this digital process that’s similar to the digging up of natural resources; there is a limited amount; special hardware tools are used to dig; people working as miners are needed to operate the machinery; and it requires great amounts of patience and energy that can, in some cases, become more costly than profitable.
Satoshi Nakamoto programmed a means for a stable mining rate no matter the number of miners in the system. This meant easier mining for the few miners in the system at the start, and progressively harder mining as the number of miners grew. Consider, for example, the chances of winning the lottery between buying in with only another 15 people or buying in with another 100,000 players.
Proof of Work
One method of mining is the process is being the first miner to arrive at the answer to a random numeric problem. It’s a screening activity before the real transaction verification. No person actually sits for equations on paper, but it’s supercomputer guesswork taking place to generate a 64-digit hexadecimal number, known as a hash, that’s equal or closest to the target hash. Auditing is another way to look at it. It protects from the double-spending problem— the case where people may fraudulently use the same online dollars multiple times without a true transaction happening. Imagine the comical vending machine cheat where a string is attached to the dollar.
Is Bitcoin Mining Still Profitable Today?
To join the math challenge, one must acquire a graphics processing unit (GPU) or use an application-specific integrated circuit (ASIC) just for the purposes of mining bitcoin. Yet, even with the necessary hardware, with so many miners in the system today, it’s virtually impossible to mine alone.
Today the profit comes through mining pools. This is cooperative work where miners team up and agree to share the profits amongst their pool proportionately to the relative work input. This way, the chances of successful mining rises for payouts worth the work and time.
Overall, this is one of the two important jobs miners are rewarded for: The auditing of bitcoin transactions with blockchain, and the generation of new bitcoin by the processes described above. Both of these jobs pay miners in bitcoin in accordance with their work. This incentive attracts more miners into the system which means faster verification and greater security for the future of Bitcoin.