Today, Bitcoin is the most popular and the most well-recognized cryptocurrency in the world. But while average users have heard time and time again that Bitcoin is “mined”, not everyone knows what it means. Today, we do a deeper dive into the future of digital currency to explain what Bitcoin mining is and how to approach it.
Before getting familiar with the intricacies of Bitcoin mining, it’s good to understand what Bitcoin is. It is a decentralized digital currency, which means it’s not emitted by a bank or even a chain administrator. Bitcoin functions in a peer-to-peer environment and its system eliminates intermediaries. All Bitcoin transactions are verified by nodes within the network and recorded in the blockchain (a public distributed ledger).
Or, if we wanted to explain it simply, Bitcoin is an alternative to fiat currency, that doesn’t require a third party to manage transactions.
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What Does Mining Mean?
Bitcoin was created by Satoshi Nakamoto, and the first, original way to acquire Bitcoin was to solve a complex mathematical problem and add a new block to the blockchain. For this, a user gets a reward in Bitcoin. The process is called mining, and it is through this process, that new Bitcoins are introduced into circulation. A user can’t solve these problems on their own, let alone fast, so for mining specific equipment is used.
Mining and Miners
Those who are more familiar with Bitcoin have certainly heard the term “proof of work” concept. This is what mining is all about: after solving the problem before everyone else, a user needs verification from independent chain participants i.e. nodes. Once the results are validated, a new block is added and the user can get their reward.
All this requires significant computational power (or hash power) and energy. Which is why only some devices are capable of mining. Not only that, but the difficulty of the problems that require solution adjusts to ensure that approximately every 10 minutes, a new block is added. And if that wasn’t complicated enough, every 4 years rewards for new blocks are cut in half. This process is called halving, and it rewards early adopters while balancing the emission of Bitcoin.
Here is what the mining process looks like:
⚫ Hashing the block. Miners take the header of the most recent block and a nonce (a random number) and input them into a cryptographic hash function. The goal is to find a hash that is below a certain target.
⚫ Validating the block. Once a valid hash is found, the new block is broadcast to the network, and other nodes validate the block by ensuring that its hash is correct.
⚫ Adding to the blockchain. The validated block is added to the blockchain, and the miner who found the correct hash is rewarded with newly created bitcoins.
Mining Equipment
Mining requires significant power and that power needs electricity. Initially, mining was performed on desktops using CPU and GPU chips. They are still able to mine Bitcoin but in terms of efficiency, they are inferior to newer hardware. The most commonly used type of miner today is ASIC — an application-specific integrated circuit. It’s a device created for the future of digital currency with the sole purpose of mining cryptocurrency. ASICs can mine Bitcoin or other currencies, but the fact that they are designed for one task is what makes them more powerful.
Of course, ASICs can’t be just placed in a closet and put to work. They require maintenance and a balanced environment with temperature control and preferably, access to cheap electricity without risks of outages. Not every user can afford that, which is why mining hotels and external services exist.
The Future of Digital Currency with Mining Services
There are many types of businesses created around Bitcoin itself and mining. Most of them focus on finding cheaper and more accessible ways to acquire Bitcoin, that wouldn’t put users in a position where they’d have to spend extra money just to participate in the process.
Cloud Mining
Users of cloud mining services can mine Bitcoin without owning, maintaining, or operating the hardware themselves. Instead, they rent mining power from a cloud mining provider. Basically, a user receives a share of the rewards received by the data center, according to their contract. It means that the larger the share of power they are renting, the bigger their rewards.
Cloud mining has been criticized by many for its lack of transparency. Unfortunately, not all service providers choose to conduct their business honestly, which leads to reviews calling companies scammers. Before choosing cloud mining services, it’s recommended to do some research and get familiar with what the market has to offer.
Digital Mining
Unlike cloud mining, digital mining values transparency. Users don’t rent anything but purchase the computational power of data centers via digital miners. A digital miner is an NFT with designated hash power and energy efficiency. Each digital miner represents a portion of the power of a physical data center that belongs to the service provider.
With digital mining, users get more information in advance: they can calculate approximate rewards and even use a trial period. GoMining is a quality example of digital mining — the project introduced its first miner collection in 2022, and since then, has developed a whole ecosystem around its mining operation, which includes a native token, wallets, a crypto launchpad, and much more.
Mining games
Another way to get Bitcoin is by taking part in mining games. These games are designed to allow mining in a fun format with a competitive element. It adds naturally to the process of Bitcoin mining, by turning the process into a race: the team or the player who manages to add the next block first wins. This is just one example of the game structure since some of them are built more like casinos, while others focus on the competition.
Bitcoin mining is a complex process that maintains the integrity and security of the Bitcoin network. It does require technical knowledge but by understanding the basics, users can build a strong foundation that will allow them to approach mining with a clear understanding of what they can achieve with the resources they have.
Regardless of which method you choose among the future of digital currency, Bitcoin mining can be a lucrative, albeit risky, venture.