If you’re familiar with Bitcoin, you may have heard the phrase ‘Bitcoin Mining’ thrown about before. But for those of you who haven’t, or for those of you that have and want to know more, this article contains the inside scoop on what is actually is, and what bitcoin miners really do. (And no, it doesn’t involve caves.)
What is Bitcoin mining?
Ok - let’s deep dive straight into the technicalities, and see if we can get to grips with the basics.
Bitcoin mining is the process of validating transactions using the cryptocurrency, in order to secure the network. This is done through solving complex computer-based mathematical problems. Once the transactions are confirmed, new blocks are created on the blockchain and miners are rewarded for their efforts with new coins.
In fact, the entire process is pretty comparable to that carried out by miners looking for gold, or other natural resources for that matter. Effort is needed to find the resource, or, in our case - validate the transactions to ensure the security of the network - and the miners are rewarded for their work in return.
What ensures the security of the network is not only the process of validating transactions, but the decentralisation itself. The fact that anybody can participate as a miner, which increases the difficulty through competition (as only the first miner to come up with the correct hash is rewarded) and pushes up the machinery and energy costs as a result, effectively makes the network to expensive to tamper with.
And just as gold is considered to be a finite resource, Bitcoin too has a finite amount. The protocol created by Satoshi Nakamoto set out that there were to be only 21 million Bitcoins in circulation, ever, and that this supply would be controlled by a process called the ‘Halvening’.
You can read more about what this process means and why it matters here, but essentially the ‘Halvening’ reduces the reward for miners every four years in order to prevent massive changes in inflation affecting Bitcoin.
The first halvening occurred in 2012, where the reward dropped from 50 BTC to 25 BTC. Four years later, in 2016, 25 BTC dropped to 12.5 BTC, and in just a few months we’ll see miners receive only 6.25 BTC for their work.
As the rewards lessen, miners will start to rely more on the transaction fees associated with validating transactions. We’ve looked into how exactly these fees work, and what they mean for you when spending your BTC here, but as it is estimated that 2140 will be the year in which the last coin is mined - there is still a while to go before Bitcoin mining rewards come to an end.
If you fancy getting your hands on some, and doing some mining yourself, be sure to carry on reading - we’ve got some hot tips coming your way.
So what exactly do Bitcoin miners do?
Miners are the individuals who oversee the mining process. Unlike traditional money that is handled and issued by banks and central authorities, there is no single governing body that controls the introduction of new coins to the Bitcoin network.
Instead, miners from all over the world can contribute to the mining effort, and get rewarded for their work in BTC, regardless of their location or experience, and here’s a brief explanation of how you can too:
Setting up a mining rig
You can buy an ASIC miner, an application-specific integrated circuit that is designed specifically to mine Bitcoin. It may sound like an intimidating industrial contraption, but it is essentially a computer chip that, together with a computer and a power supply, can turn you into a fully fledged Bitcoin miner.
Despite the equipment being generally accessible, ASICs can be incredibly loud and often heat up quickly, making them unsuitable for urban environments. It’s also important to be aware that individual mining rigs can become costly, and may even take years to generate profit, although there are some variations of the miner available for those looking to mine at home.
Be sure to test out different setups in order to find the one that works best for you, and make use of mining calculators, such as this one from CryptoCompare, to help you estimate the profitability of your efforts.
Join a mining pool
Instead of mining independently, mining pools allow groups of miners to come together and combine their efforts. Whilst this does mean the overall rewards for validating transactions are shared between those in the pool, it also increases your chances of getting a reward in the first place.
Pools are therefore considered to be a steadier way to make an income when mining, and are particularly good for beginners just getting started in the field. Some examples of prominent mining pools include BitMinter, CK Pool and Slush Pool.
Download a mining app or platform
If you don’t want the hassle of buying new equipment, or feel like you don’t want to invest too much time or money into the process, perhaps you should consider downloading a Bitcoin mining app or platform that runs on your computer, with little added extras.
Simply install the software to get going, but - as with setting up your own mining rig - don’t expect to go from rags to riches instantaneously. Standard computers rarely have the power necessary to mine Bitcoin cost effectively, and the withdrawal costs can often be high. However if you aren't interested in profit but are still curious about the process - this could be the perfect solution.
This method requires no installation or effort on your part. Instead, you buy a share of mining power from a provider of your choice, and they do the mining for you! Choose from contracts lasting from hours, in some cases, to years, in most cases, and watch on as rewards are regularly sent to your linked wallet.
Start mining crypto yourself
If that, or any of the other ways to mine, have tickled your fancy - be sure to check out our more in-depth article on the easiest ways to mine Bitcoin and other cryptocurrencies. We look into different types of software and platforms available, and provide you with an extensive list of the best mining options out there right now.
Some quick-fire Bitcoin mining facts
Now that you know all there is to know about what mining is and how to do it yourself, we thought we’d leave you with some interesting facts that you can drop into conversation and really impress your friends with.
Approximately 85.191% of all Bitcoins to ever exist have been issued*
The entire process of mining is actually far less polluting than the media will lead you to believe, as we discovered when writing about the truth behind Bitcoin’s energy consumption
Sichuan, in China, is one of the world’s most favourable mining destinations, thanks to its many hydroelectricity plants
One of the biggest public mining pools right now is BTC.com, which has around 28% of the hash-rate share*
According to 99bitcoins, the entire Bitcoin mining network is more powerful than ‘the 500 supercomputers of the world together’. Impressive, right?
*Stats correct as of 10:00 UTC on 22/08/2019