Bitcoin Mining – What and Who Are Miners?
When mining is mentioned, most of us first think of people with helmets digging with tools in search of ores deep underground. In the world of Bitcoin and cryptocurrencies in general, that word has a different meaning. Bitcoin mining is becoming an increasingly popular way to make money, and all you need to get started with cryptocurrency mining are strong graphics cards. Read more about everything below.
What is Bitcoin Mining?
There is also one significant similarity between mining as we normally imagine it and Bitcoin mining. Namely, in both cases, what we are looking for is something that really exists. In the first case it is about gold and similar materials, and in the second about Bitcoins that are part of the Bitcoin protocol. Also, in both cases it is a process of digging up what we are looking for.
At its core, Bitcoin mining refers to the process of adding transactions to a public ledger or blockchain, resulting in the mining of Bitcoin. The excavated Bitcoins serve as a reward to those who have contributed to the process of adding transactions.
But what is it really about? Before we explain the mining process in more detail, we will need to define some of the main concepts.
A Bitcoin node is a computer used to run Bitcoin software. Its purpose is to expand transaction data throughout the network. The node receives transaction information, which it then sends to the nodes it knows about. Each of these subsequent nodes sends the data further, until the entire network is notified of the transaction. The result is fast information transfer. However, that is not all that one Bitcoin node can do. Namely, there are also mining nodes. Their purpose is to group transactions into blocks and add them to the blockchain, which we will discuss in more detail in one of the following paragraphs.
Before that, we need to answer the question of how just stacking in blocks works.
Part of the Bitcoin program is also a complex math puzzle that needs to be solved and included in the block itself in order for it to be approved by the network. The puzzle consists of finding a number which, combined with the data in the block and passed through a hash function, gives a result from a predetermined range. It is much harder than it seems at first glance.
A more common name for a public book is the English word blockchain. In cryptocurrency, a block is a record of new transactions (this could mean the location of the cryptocurrency or medical data, or even voting records). After each block is completed, it is added to the chain, creating a chain of blocks: a blockchain.
Because cryptocurrencies are encrypted, processing all transactions means solving complex mathematical problems (and these problems become more difficult as the blockchain grows). People who solve these equations are rewarded with cryptocurrency, and the process of solving tasks and getting currency is called “mining”.
If you own any cryptocurrency, what you really have is a private key (basically just a long password) to its address on the blockchain. You can use this key to raise the currency for spending, but if you lose the key, there is no way to get your money back. Each account also has a public key that allows other people to send cryptocurrencies to your account.
Blockchain information is also publicly available. It is decentralized, meaning it does not rely on just one computer or server to function. So, all transactions are immediately visible to everyone.
Proof of work
Proof of work or PoW is the original consensus algorithm in a blockchain network. In blockchain, this algorithm is used to confirm transactions and produce new blocks on the chain. With PoW, miners compete against each other to complete online transactions and win a prize.
Users send digital tokens to each other online. A decentralized book gathers all transactions into blocks. However, care should be taken to confirm transactions and arrange blocks. This responsibility lies on special nodes called miners, and the process is called mining.
The main principles of operation are a complicated mathematical puzzle and the ability to easily prove a solution.
Disadvantages of Bitcoin mining
There are several benefits to Bitcoin mining, which include receiving Bitcoin after solving a “puzzle”, or receiving Bitcoin by helping in a mining pool. However, there are a lot of disadvantages that come with Bitcoin mining, and these are:
- Spending Bitcoin – Unless you plan to exchange Bitcoins for another currency, you should look for stores that accept Bitcoins for the currency. Most stores that accept Bitcoin will only be online.
- Unstable value – Another of the biggest disadvantages of Bitcoin mining is the fact that the value of Bitcoin can change. While it is true that all currencies oscillate in value, Bitcoins seem much more volatile compared to credible currencies like the US dollar or the euro. In fact, Bitcoins can change value every time people seem to have less confidence in them or when there is a technical problem with the system.
- Lack of protection – Since there is no central organization that controls Bitcoins, there is no form of protection when it comes to Bitcoin transactions. There is no consumer protection, and if you want your Bitcoins to be completely safe, such as money in banks, you won’t find that either. If you accidentally lose your wallet by accidentally deleting, erasing your hard drive, etc. and you have no backups, Bitcoins are gone.
How, then, could Bitcoin mining be defined?
Bitcoin mining is the process by which transactions are confirmed and added to a public ledger, known as a blockchain, and it is also a means by which new Bitcoins are released into use. Anyone with internet access and appropriate hardware can participate in mining. The mining process involves putting recent transactions into blocks and trying to solve a difficult puzzle. The participant who solves the puzzle first gets the next block on the blockchain and gets prizes. Rewards, which encourage mining, are also fees for transactions related to transactions made up in a block, as well as new Bitcoins.