Why-mining
As of late March 2022, Bitcoin value hit clocked in at $43,394.80 on the exchange market. This value is an indication of good tidings for the cryptocurrency. Over the years, there has been such a growing interest in the Bitcoin currency that its value has grown to resemble that of gold.The future is promising for Bitcoin miners and enthusiasts, and it’s a potentially rewarding enterprise for anyone who wants to give it a go. However, let’s first take some time to learn the basics about Bitcoin mining.
In brief:
- The blockchain ledger keeps growing as transactions that have taken place in the network are constantly added to it.
- Transactions in the blockchain network are grouped into blocks that are linked together to form a chain of blocks, hence blockchain.
- Blockchain transactions are stored in chronological order marked by timestamps and hash functions.
- By this virtue, records stored in the blockchain network are permanent and immutable.
There are three ways through which bitcoin miners can acquire bitcoins. These are:
- Purchasing bitcoins on the exchange market
- Accepting bitcoin in exchange for goods and services
- Mining new bitcoins
Of these three, bitcoin mining is perhaps the most exciting option as it sends miners on a path to discovery. There is a caveat. Bitcoin mining can be quite taxing as it requires very high computing power to solve complex mathematical equations to verify transactions and add them to the blockchain digital ledger.
What Is Bitcoin Mining?
Bitcoin mining refers to ensuring that transactions are valid and added to the Bitcoin blockchain correctly using a global network of computers running the Bitcoin code. The process of mining is also the means by which new Bitcoins are created.- The process of bitcoin mining involves the verification of new transactions against the Bitcoin network, which results in the production of new bitcoins.
- Bitcoin mining is the process by which Bitcoin transactions are validated digitally on the Bitcoin network and added to the blockchain ledger.
- It is done by solving complex cryptographic hash puzzles to verify blocks of transactions that are updated on the decentralized blockchain ledger.
Solving these puzzles requires powerful computing power and sophisticated equipment. In return, miners are rewarded with Bitcoin, which is then released into circulation hence the name Bitcoin mining.
What Is Bitcoin?
Bitcoin is the first decentralized digital currency that allows peer-to-peer transfers without any intermediaries such as banks, governments, agents, or brokers, using the underlying technology of blockchain. Anyone around the world on the network can transfer Bitcoins to someone else on the network regardless of geographic location; you just need to just open an account on the Bitcoin network and have some Bitcoins in it, and then you can transfer those Bitcoins. How do you get Bitcoins in your account? You can either purchase them online or mine them.Bitcoin can be used for online purchases and or as an investment instrument. Primarily it’s used to buy goods and services.
Bitcoin Advantages
Compared to traditional fiat currencies, assets can be transferred faster on the bitcoin network. The system also has lower transaction fees, because it’s decentralized and there are no intermediaries, and it is cryptographically secure—the identities of the sender and the receiver are kept hidden, and it is impossible to counterfeit or hack the transactions. Plus, all the information is available on a public ledger, so anyone can view the transactions.What Is Blockchain?
As mentioned, blockchain is the underlying technology of bitcoin. Blockchain is a public distributed ledger in which transactions are recorded in chronological order. Any record or transaction added to the blockchain cannot be modified or altered, meaning transactions are safe from hacking. A block is the smallest unit of a blockchain, and it is a container that holds all the transaction details. A block has four fields, or primary attributes:- Previous hash: This attribute stores the value of the hash of the previous block, and that's how the blocks are linked to one another.
- Data: This is the aggregated set of transactions included in this block—the set of transactions that were mined and validated and included in the block.
- Nonce: In a “proof of work” consensus algorithm, which bitcoin uses, the nonce is a random value used to vary the output of the hash value. Every block is supposed to generate a hash value, and the nonce is the parameter that is used to generate that hash value. The proof of work is the process of transaction verification done in blockchain.
- Hash: This is the value obtained by passing the previous hash value, the data and the nonce through the SHA-256 algorithm; it is the digital signature of the block.
SHA-256 is a cryptographic hash algorithm that produces a unique 256-bit alphanumeric hash value for any given input, and that is the unique feature of this cryptographic algorithm: Whatever input you give, it will always produce a 256-bit hash.
3 Concepts of Blockchain
To understand bitcoin mining, you have to first understand the three major concepts of blockchain.- Public distributed ledger: A distributed ledger is a record of all transactions maintained in the blockchain network across the globe. In the network, the validation of transactions is done by bitcoin users.
- SHA-256: Blockchain prevents unauthorized access by using a hash function called SHA-256 to ensure that the blocks are kept secure. They are digitally signed. Their hash value, once generated, cannot be altered. SHA-256 takes an input string of any size and returns a fixed 256-bit output, and it is a one-way function—you cannot derive the reverse of the input reverse fully from the output (what you have generated).
- Proof of work: In blockchain mining, miners validate transactions by solving a difficult mathematical puzzle called proof of work. To do that, the primary objective of the miner is to determine the nonce value, and that nonce value is the mathematical puzzle that miners are required to solve to generate a hash that is less than the target defined by the network for a particular block.
Bitcoin Profit and Bitcoin Mining Profitability
Bitcoin Profit is an automated crypto robot that helps trade Bitcoins and other cryptocurrencies to earn profit. It uses an AI algorithm to identify trading opportunities in the crypto market that can automatically close and open your trade, saving your time and manual intervention during trading. It claims that around 85% of its trades produce profits in normal market conditions. However, technical knowledge is required to calculate the profit generated through the Bitcoin mining process.Talking about the actual Bitcoin profit - the real money making - it depends upon the cost of the AISC hardware, electricity consumption, and the effectiveness of the mining software. Bitcoin Mining profitability has decreased in recent times compared to the previous years because of the rise in electricity costs, costlier hardware, difficulty in mining due to an increase in competition, and a decrease in the Bitcoin prices. Earlier, Bitcoin Mining was initiated using CPUs and easy AI Algorithms, making it profitable and less costly.
Bitcoin vs. Traditional Currencies
While both Bitcoin and traditional currency are similar in that both are a store of value, they differ in many ways. First things first, Bitcoin is the first and most recognized cryptocurrency - a digital currency that is secured by cryptography. Traditional currency, also referred to as fiat money, is a government-issued and regulated currency.Some differences between Bitcoin and traditional currencies are illustrated in the table below.
| Bitcoin | Traditional Currency | |
|---|---|---|
| Tangibility | It is a virtual currency and can only be used in its digital form | It is a physical currency in the form of notes and coins. However, we can use it in both physical and digital forms |
| Regulation | Issued through mining and controlled by a decentralized distributed network of computers | Issued and controlled by central government authorities, i.e., central banks. Owing to this, the traditional currency is the legal tender in the country governed by the issuing authority. |
| Governance | Governed by a consensus mechanism in which the majority rules | Purely governed by the central bank |
| Value | Value is backed by the trust of its users. The more users are willing to transact with Bitcoin, the more stable it becomes. | Value is determined by forces of supply and demand and is thus vulnerable to inflation |
| Supply | Capped at 21 million bitcoin | Fiat currency has no supply limit |
| Validation of transactions | Bitcoin transactions are validated using blockchain technology and so do not require an intermediary for validation | Transactions involve an intermediary such as a bank or a payment provider |
| Transaction fees | Minimal or no associated fees as intermediaries have been eliminated | Transactions attract considerable charges |
| Transaction time and speed | The transaction is almost always instantaneous or greatly depends on the network speed | Transactions may take time before verification or before they reflect on the system |
| Security | The concepts of decentralization, cryptography, and consensus guarantee a secure network and security of bitcoin transactions | Less secure as it can be negatively affected by fluctuations in government policies |
| Reversals | Bitcoin transactions cannot be charged back, reversed, or canceled | Chargebacks, reversals, and cancellations are commonplace with traditional currency transactions |
