What is Bitcoin Mining?
A lot of people now understand what cryptocurrencies (Bitcoin and Ethereum for example) are. However, actually, not everyone knows or understands what Bitcoin mining is all about. Bitcoin mining isn’t too relevant to the average Bitcoin owner nowadays, but that doesn’t mean it has lost its importance.
Bitcoin Mining Process
This is a process that involves the verification and addition of transactions to the public ledger (blockchain). With this, new bitcoins are also released. There is a glaring difference between the validation process for Bitcoin and orthodox electronic payment networks. This difference is that issuing banks, merchant accounts, acquiring banks or compulsory centralized clearinghouses are not needed. With this, there is no reason for funds to be held until transactions are processed at the end of each day.
Anyone can participate in the process of bitcoin mining by running a computer program. This mining process entails trying to solve a very difficult computation puzzle after compiling transactions into blocks. Anyone who solves this puzzle first will be provided with the opportunity to add the next block on the blockchain – thereby collecting the rewards. These rewards are transaction fees associated with the block compilation and the just-released bitcoin. These rewards also provide an incentive to the mining process.
There is also specialized Bitcoin mining hardware equipment that has been created by companies to supplement traditional computers. These pieces of mining hardware have the ability to process transactions and establish blocks at a faster and more efficient rate than normal computers.
Why is Bitcoin Mining needed?
We all know that bitcoin doesn’t work in the same way traditional currencies do. Pounds, dollars and other currencies are managed by banks and financial organizations that normally authenticate transactions. However, Bitcoin uses a public ledger system for its operation. For the basis of confirmation of transactions (so as to avoid the scenario of one Bitcoin being used multiple times), several Bitcoin nodes that are run by miners around the world will need to approve it.
For this authentication or approval, these miners are rewarded with the transaction fees that have been paid for by those conducting the transaction. There are still sufficient new bitcoins to be mined with its maximum existence capacity set at twenty-one million. This capacity will also serve as an incentive for the mining process. During the launch of Bitcoin, new blocks awarded fifty bitcoins to the miner (with the amount halving every four years). At the moment, twelve and a half new bitcoins constitute one block.
With people undergoing the mining process, they will create more bitcoins that will be included in the general circulations. These miners will also be facilitating transactions that ensure that Bitcoin remains an operational cryptocurrency.
It isn’t a secret that anyone can decide to become a Bitcoin miner so as to stand a chance of earning coins. However, the competition in bitcoin mining has become very fierce. It has even become specialized with dedicated professionals using specialized hardware, big data centers, and cheap electricity. To stand a chance, you will need to invest time, significant resources and you will also need access to cheap electricity. With all these, your chances of success in bitcoin mining will significantly increase.