Bitcoins are discovered rather than printed. Computers compete with one another to “mine” for coinage worldwide.
Why bitcoin mining?
There are two basic reasons why an individual, or corporation, might desire to mine cryptocurrency like bitcoin.
- In order to be eligible for Bitcoins block awards (worth roughly $177,000, or 6.25 bitcoins as of April 2023), Roughly speaking, new blocks are found every ten minutes.
- Can take part in keeping the decentralized Bitcoin network safe and stable.
How do Bitcoin Miners Discover Fresh Blocks?
Using specialized computing equipment, miners must compete with one another to validate and add new transactions to the blockchain. They create “hashes,” or fixed-length codes, using their apparatus (see below.) Miners must create a hash with an equal or greater number of zeros in front of it than the “target hash” in order to find the next block.
Miners are attempting to get below the target hash, a 64-digit hexadecimal code made up of the letters A-F and the integers 0 through 9, in order to find the next block.
All miners begin by using the information from the previous block, referred to as the “block header,” which includes a timestamp for the block, a hash of the data from the previous block, and an empty space called a “cryptographic nonce.” With the exception of the nonce, the majority of the data in the block header is fixed, meaning it cannot be altered. Miners are permitted to modify the portion of the preceding block header known as a nonce, which translates to “a number only used once.” Recall that altering even a single bit of the input results in an entirely new hash.
One of the challenges is that hashes are produced entirely at random, making it hard for miners to predict the hashes before they are produced. Thus, the process essentially consists of making mistakes until one discovers the ideal nonce value, also referred to as the “golden nonce.”
Because of this, miners are forced to purchase powerful computers that consume a lot of energy, especially application-specific integrated circuit (ASIC) miners, which are capable of producing trillions of hashes every second.
One simple approach to conceptualize Bitcoin mining is to see every new block as a combination-locked treasure box. You must keep turning one of the number wheels on the lock (the nonce) until you figure out the combination in order to receive the free bitcoin block reward inside and gain the permission to add new transaction data to it (and earn the related fees) (the target hash.)
This is an illustration of what a target hash could resemble: 0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee
Try using this free online hash generator to create a winning hash for yourself to see how hard it is to construct a hash with more zeros at the front than the target hash above. Just enter any word in the given text field to check if it generates a hash with more than 17 zeros at the front!
What is a hash?
A hash is a mathematical function used in cryptography that transforms any input message or data into a fixed-length code. Consider it akin to an encryption method in which messages are converted mathematically into a predetermined string of characters and numbers.
It is impossible to estimate the size of the input because the outputs have predetermined lengths. The hash of the word “hi,” for example, would have exactly the same length as the hash of a Harry Potter book’s whole text.
Since the hash cannot be changed back to its original input, these hash algorithms are irreversible. The same input will always result in the same letter and number sequence. For instance, the hash for “hi” will always be the same code. Since every code that is generated is entirely unique, it is not possible to create the same hash using two separate inputs.
In the case of Bitcoin, the blockchain employs Secure Hash Algorithm 256 or SHA 256 to generate a 256 bit or 64 characters long output, regardless of the size of the input.
What is the Profitability of Mining Bitcoin?
The protocol, which is a set of guidelines built into Bitcoin, pays out a specific number of freshly created coins to the winning miner for each new block that is added to the blockchain. In addition to serving as Bitcoin’s distribution mechanism, this block reward scheme
The coins given to miners are halved, or roughly every four years, or 210,000 blocks, as part of Satoshi Nakamoto’s planned steps to gradually reduce the amount of bitcoins released over time. This process is called a “Bitcoin Halving.” The block reward in 2009 was fifty bitcoins. In 2013, this amount was lowered to 25 BTC. 2020 witnessed the most recent halving, which reduced block rewards from 12.5 BTC to 6.25 BTC.
Keep in mind that there is a 21 million coin maximum supply limit for bitcoin, and 18.9 million of those coins are now in use. Block incentives will stop being given out as soon as 21 million BTC are available for purchase. After then, the only incentives available to miners will be bitcoin transaction fees.
Not every miner makes money even with these two revenue streams combined. A miner needs to earn more than the cost of energy and the purchase and upkeep of mining equipment in order to survive. Large mining operations are also compelled to grow or modernize their equipment in order to preserve a competitive edge as mining complexity rises. The majority of regular miners, who are unable to purchase pricey equipment, have the option to pool their resources with those of other miners worldwide. Every miner consents to split rewards based on their individual contributions. We refer to these groups of miners as “mining pools.”
Nonetheless, there are a few unusual cases in which home-based lone miners have been successful in mining blocks alone.
Bitcoin Mining Challenges
One crucial piece of information regarding Bitcoin is that its protocol was designed with a 10-minute goal block discovery time when it was developed by Satoshi Nakamoto. This indicates that it should take a miner about ten minutes to figure out how to successfully generate the winning code in order to find the next block.
How then does the network make sure that every ten minutes, fresh blocks are found?
Depending on how fast or slowly blocks are being identified, the Bitcoin protocol can automatically raise or reduce the complexity of the mining process.
The goal hash is automatically changed by the Bitcoin protocol every two weeks to make it more or less difficult for miners to discover blocks. The difficulty will shift downward if they are taking too long (more than 10 minutes) and upward if they are taking less than 10 minutes. To be more precise, the protocol will change how many zeros are at the front. Although it may not seem like much, simply adding one zero to the target hash makes the code considerably more difficult to crack, and vice versa.
The largest-ever decline in bitcoin’s network difficulty occurred in 2021 as a result of China’s restriction on mining activities. The remaining bitcoin miners then reported notable increases in mining income as a result of this.
The Bitcoin protocol is able to maintain block discovery times as near to 10 minutes as possible by use of this mechanism. Here you can monitor Bitcoin’s mining difficulty.
Even while mining Bitcoin can be a very lucrative endeavor, its profitability is sometimes restricted by the hardware and electrical requirements, especially for miners with low resources.
Why is the Energy Used in Bitcoin Mining so High?
The enormous amount of energy required for Bitcoin to produce new coins, verify transactions, and safeguard its network is one of its main disadvantages. As of the time of writing, Bitcoin’s hash rate, which quantifies the total processing power devoted to creating new currencies, is 183 exahash (Eh/s). This means bitcoin miners jointly attempt to crack the target hash of the next new block 183 quintillion times every second.
This activity uses over 131 TeraWatt hours (TWh) of electricity year, which is more than the nation of Ukraine uses in the same period, according to the Cambridge Bitcoin Electricity Consumption Index (CBECI).
The primary cause of this excessive consumption is that when the price of bitcoin increases, it attracts new miners who must compete to earn new coins and pushes established miners to buy more rigs or update their gear in order to stay in the game. When this occurs, the amount of processing power required to mine bitcoin rises (hash rate rises), which prompts the bitcoin protocol to increase difficulty in order to maintain the stable rate of block discovery every 10 minutes.
Higher energy consumption is a logical result of this increased competition; the more machines mining bitcoin, the more energy each one of them uses.
