Definition

Bitcoin Mining

  • Updated on

What is Bitcoin Mining?

Bitcoin mining could be defined as a process of record-keeping, done through the use of computer processing power to add a transaction into a public distributed ledger known as a blockchain where records of every Bitcoin transaction are held. It is one of the major methods to generate a bitcoin in the crypto market.

Bitcoin miners often engage themselves with this task as they get rewards for doing the same in terms of bitcoins.

What is Blockchain and How does it Work?

A blockchain as the name suggests is a chain of blocks, which are lists of bitcoin transactions made through a period of time. Generally, bitcoin transaction generates a block, which is later processed by bitcoin miners via applying the complex mathematical formula on the information contained under a block.

The processing by bitcoin miners on a block subsequently turns the block into a shorter random series of letters and numbers, which is known as a hash.

By definition, a hash is just a fixed-length (often 40 characters and numbers) series of random letters and numbers, which could be ideally generated by processing the data of any size and dimension.

A hash does not necessarily contain the information from the block, it might also include other data, and in case of bitcoin mining, it usually stores hash of the previous block in the blockchain.

Once a hash is generated, it further leads to the confirmation or identification of a bitcoin transaction in a blockchain; thus, leads to generating a bitcoin for the miner.

Generally, generating a hash from a block of data is relatively easy for computers and a bitcoin miner can generate a hash for thousands of blocks every second.

However, to prevent that, the bitcoin network deliberately makes the process more difficult and painstaking for bitcoin miners to control any potential supply glut.

Hash Rate and Reward

In general terms, a hash rate could be defined as a measure of how much computational power is involved in securing and mining the bitcoin network. Ideally, a higher hash rate means more bitcoin for an individual but less bitcoin for a network.

So, if the current hash rate of the machine is 5 Th/s, it could make 5 trillion calculation per second.

Also, a high hash rate is associated with higher security of a network, any chances of fraud and duplication inside a blockchain network diminishes considerably as hash rate increases.

In the process of bitcoin generation, a bitcoin network creates a target number for a bitcoin transaction in roughly every 10 minutes, and mining machines usually try to guess the same. So, higher the hash rate of a machine, sooner it can calculate hashes and try to match the target number.

Once a machine matches the target number for a transaction, it gets rewarded with a bitcoin.

The requirement of the bitcoin network for the machine to match the target number generated by a bitcoin transaction is what makes the task complicated and time-consuming; thus, keep the supply in check.

Furthermore, once a machine matches the target number, it gets a mining reward. As of now the current mining reward for processing the block and matching the target number is 6.25 bitcoins after the last halving day on 11 May 2020.

What is Halving Day?

At the beginning of the process, the reward for mining per block was 50 bitcoins; however, since then, the reward for mining a bitcoin has been reduced to half of it for the third time. Post the last halving day on 11 May 2020, the reward for mining a block is at 6.25 bitcoins per block.

The bitcoin mining reward gets half for every 210,000 blocks mined, and as per the official data, the next halving day is expected to fall on 9 May 2024 (13:37:22 UTC).

Bitcoin Mining Hardware Universe

  • Hash Rate

As mentioned above, a higher hash rate leads to quicker calculations; thus, increases the chances of solving a block generated by the bitcoin network and getting rewards for the same.

At present, bitcoin miners look for is a specified output of the hash function. Also, the process of hash the function is troublesome as the same input will provide the same hash over and over again. But to mine a bitcoin, miners need to test random inputs to generate matching hashes or the target number.

Thus,  hardware with a very high hash rate is the very basic requirement of a bitcoin mining system. Currently, the hardware specifically designed for bitcoin mining provides anywhere between 336 megahashes per second to 14,000,000 megahashes per second.

  • GPU

GPU was once one of the most powerful tools of a bitcoin mining system as it was used to estimate complex polygons, making them a great tool for hashing mathematics. However, the best GPU in the market – ATI 5970 can only provide up to 800 megahashes per second.

Thus, with the emergence of dedicated hardware for bitcoin mining, the use of GPU has also become somewhat obsolete.

  • FPGA

Field Programmable Gate Array was the first dedicated bitcoin mining hardware, defined as one of the revolutionary technology in the bitcoin mining space.

FGPA is basically an integrated circuit that allows mining hardware to get customised for bitcoin mining. The main use of the FGPA was over GPU with better hash rates and low energy consumption.

  • ASIC

ASIC stands for Application-Specific Integrated Circuit is a designed microchip that doubles the hashing power of a system with low energy consumption.

Some industry experts anticipate that ASIC is the end of the line as nothing could replace it in the short-term. Some of the best ASIC offer a hash speed of ~ 14,000,000 megahashes per second.

Some of the leading Bitcoin Mining Software

  • CGMiner

CG Miner is C-based open source software that works on most operating systems (OS) including Mac, Linux, and Windows with compatibility with GPU, FPGA, and ASIC.

  • BFGMiner

BFGMiner is also a C-based software that works with most OS like Mac, Windows, and Linux and is compatible with FPGA and ASIC.