The process by which new bitcoins are placed into circulation is known as bitcoin mining. It is an essential part of the development and maintenance of the blockchain ledger and is also how the network confirms new transactions. The process of “mining” involves using sophisticated hardware to solve a very challenging computational math problem. The next block of bitcoins is distributed to the first computer to solve the issue, and the cycle repeats.
Mining for cryptocurrencies is time-consuming, expensive, and rarely profitable. However, mining has a magnetic allure for many investors who are interested in cryptocurrencies. This might be the case because businesspeople, like gold prospectors in California in 1849, see mining as a source of free money. And why not do it if you enjoy using technology?
The bitcoin reward that miners receive encourages people to help with the main goal of mining. Bitcoin is a “decentralized” cryptocurrency, or one that doesn’t rely on any central authority like a central bank or government to oversee its regulation, because many users all over the world share these duties.
Why do we mining Bitcoin
The only way to introduce new cryptocurrency into circulation is through mining, which also benefits the Bitcoin ecosystem and enriches the wallets of miners. Therefore, miners are essentially “minting” money. For instance, out of a total of 21 million bitcoins, there were just under 19 million in circulation as of March 2022.
All of those bitcoins, with the exception of those created by creator Satoshi Nakamoto through the genesis block (the very first block), were created by miners. The Bitcoin network would continue to function without miners, but no new bitcoin would ever be created. However, the final bitcoin won’t be in circulation until close to the year 2140 because the rate at which bitcoins are “mined” decreases over time. This does not imply that transactional verification will stop. In order to maintain the reliability of the Bitcoin network, miners will continue to verify transactions and receive rewards for their efforts.
You must be the first miner to find the correct answer—or the closest answer—to a numerical problem in order to receive new bitcoins. This method is also referred to as proof of work (PoW). Mining is the process of starting this proof-of-work activity to solve the puzzle.
There isn’t really any complex math or computation involved. You may have heard that miners are adept at solving complex mathematical puzzles; however, this is not true because math is difficult in and of itself. In reality, they’re competing to be the first miner to generate a 64-digit hexadecimal number (a “hash”) that is either smaller than or equal to the target hash. Essentially, it is guesswork.
So it is a matter of randomness, but it is incredibly laborious work given that there are trillions of possible guesses for each of these issues. And with each new miner that joins the mining network, the number of potential solutions (also known as the level of mining difficulty) only grows. Miners need a lot of processing power to solve a problem first. A high “hash rate,” which is expressed in terms of gigahashes per second (GH/s) and terahashes per second (TH/s), is necessary to successfully mine.
Being a coin miner can give you “voting” power when modifications to the Bitcoin network protocol are being proposed, in addition to the immediate benefits of newly created bitcoins. A Bitcoin Improvement Protocol is what this is (BIP). In other words, miners have some degree of control over decisions regarding things like forking. You need to vote for such initiatives more often the more hash power you have.