Why does bitcoin mining exist

In the early days of Bitcoin, desktop computers with ordinary CPUs dominated bitcoin mining. But they began taking a long time to discover transactions on the cryptocurrency's network as the algorithm's difficulty level increased with time. According to some estimates, it would have taken "several thousand years on average" using CPUs to find a valid block at the early difficulty level. Over time, miners realized that graphics cards, also known as Graphics Processing Units GPUs , were more effective and faster at mining.

But they consumed a lot of power for individual systems that were used for hardware not really required for mining the cryptocurrency. Nowadays, miners use custom mining machines, called ASIC miners, that are equipped specialized chips for faster and more efficient bitcoin mining.

They cost anywhere from several hundred to tens of thousands of dollars. Today, bitcoin mining is so competitive that it can only be done profitably with the most up-to-date ASICs.

Even with the newest unit at your disposal, one computer is rarely enough to compete with mining pools—groups of miners who combine their computing power and split the mined bitcoin between participants. Bitcoin forks have also influenced the makeup of bitcoin miner network. Between 1 in 16 trillion odds, scaling difficulty levels, and the massive network of users verifying transactions, one block of transactions is verified roughly every 10 minutes.

But it's important to remember that 10 minutes is a goal, not a rule. The Bitcoin network processed just under four transactions per second as of August , with transactions logged in the blockchain every 10 minutes. By comparison, Visa can process somewhere around 65, transactions per second. As the network of Bitcoin users continues to grow, however, the number of transactions made in 10 minutes will eventually exceed the number of transactions that can be processed in 10 minutes.

At that point, waiting times for transactions will begin and continue to get longer, unless a change is made to the Bitcoin protocol. This issue at the heart of the Bitcoin protocol is known as scaling.

Though bitcoin miners generally agree that something must be done to address scaling, there is less consensus about how to do it. There have been two major solutions proposed to address the scaling problem.

Developers have suggested either creating a secondary "off-chain" layer of Bitcoin that would allow for faster transactions that can be verified by the blockchain later, or increasing the number of transactions that each block can store. With less data to verify per block, the first solution would make transactions faster and cheaper for miners. The second would deal with scaling by allowing for more information to be processed every 10 minutes by increasing block size.

The program that miners voted to add to the Bitcoin protocol is called a Segregated Witness , or SegWit. This term is an amalgamation of segregated, meaning separate, and witness, which refers to signatures on a Bitcoin transaction.

Segregated Witness, then, means to separate transaction signatures from a block and attach them as an extended block. Less than a month later, in August , a group of miners and developers initiated a hard fork , leaving the Bitcoin network to create a new currency using the same codebase as Bitcoin. Although this group agreed with the need for a solution to scaling, they worried that adopting SegWit technology would not fully address the scaling problem.

Instead, they went with the second solution of increasing the number of transactions that each block can store. The resulting currency, called Bitcoin Cash , increased the block size to 8 MB in order to accelerate the verification process to allow a performance of around 2 million transactions per day. On Nov. Bitcoin mining is an energy-intensive process with customized mining systems that compete to solve mathematical puzzles.

The miner who solves the puzzle first is rewarded with bitcoin. The bitcoin mining process also confirms transactions on the cryptocurrency's network and makes them trustworthy.

While individual miners using desktop systems played a role during the cryptocurrency's early days, the bitcoin mining ecosystem is dominated by large mining companies which run mining pools spread across many geographies. Bitcoin mining is also controversial because it uses astronomical amounts of energy. With increasing awareness of climate change, several miners have moved operations to regions that use renewable energy sources to produce electricity.

What is bitcoin mining? Bitcoin mining is the process used to generate bitcoin. It consists of mining systems competing with each other to solve a mathematical puzzle and win bitcoin as rewards. What purpose does bitcoin mining serve? Bitcoin mining serves two purposes:. What are the main costs associated with bitcoin mining?

The three biggest costs for bitcoin mining are:. Should you mine bitcoin? Contrary to popular narrative, bitcoin mining is a costly hobby without guaranteed results. You will need to invest in expensive machines, run them 24x7, and pay high electricity bills. Even then, there is no guarantee that you will earn bitcoin.

Is bitcoin mining green? Bitcoin mining's energy usage has been criticized by climate change activists as proof that the cryptocurrency is not environment-friendly. The bitcoin mining process is estimated to consume as much electricity as entire countries. Try and change the order by making up phony past blocks and the signature will no longer match.

This allows the particular beneficiary of a transfer to prove that they were the first to receive the coins; any subsequent double spending of those coins is fraud. How do we pick a winner at regular intervals to make them compete? The solution is to ask for a string that will be difficult to generate quickly, a specific sort of output string, one that starts with a certain number of zeros, like this:.

That long line of zeros at the start of the hash is statistically improbable, like flipping a coin and getting heads thirteen times in a row. Nonetheless, there is a particular combination of inputs that will result in a hash output that starts with all those zeros.

The miners repeatedly hash their two known inputs the previous block signature and the list of new transactions , along with guesses at the random nonce. Eventually, one miner will happen upon a nonce that will give them a signature with the requested number of zeros at the start. Miners that use more powerful computers can make guesses faster, and, like buying more lottery tickets, these miners will be more likely to win the race to find a particular hash.

This is why miners can compete with each other by investing in more powerful computers. More tries at the hash equals more blocks written to the blockchain over time. To prevent blocks from being written too quickly or too slowly as more or less computing power is used by miners, the protocol is adjusted every two weeks to demand a longer, harder to guess, or shorter, easier to guess, string of zeros at the front of the hash.

The target for those adjustments is generation of a new block every ten minutes. Whenever a miner solves a block by writing a signature with enough zeros, they broadcast it and the other miners validate the solution and check to make sure that the transactions listed are all valid. That brings us, at last, to the question of why miners mine. This answer is actually simple, miners mine because the writer of a new block in the blockchain has permission from the protocol to give herself a reward of brand new bitcoins, called a coinbase transaction.

That reward started at 50 bitcoins per block. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation for how we make money. Founded in , Bankrate has a long track record of helping people make smart financial choices.

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Therefore, this compensation may impact how, where and in what order products appear within listing categories. In , this was halved to 25 BTC. By , this was halved again to On May 11, , the reward halved again to 6. Not a bad incentive to solve that complex hash problem detailed above, it might seem.

If you want to keep track of precisely when these halvings will occur, you can consult the Bitcoin Clock , which updates this information in real-time. Interestingly, the market price of Bitcoin has, throughout its history, tended to correspond closely to the reduction of new coins entered into circulation. This lowering inflation rate increased scarcity and historically the price has risen with it.

If you are interested in seeing how many blocks have been mined thus far, there are several sites, including Blockchain. Although early on in Bitcoin's history individuals may have been able to compete for blocks with a regular at-home personal computer, this is no longer the case. The reason for this is that the difficulty of mining Bitcoin changes over time.

In order to ensure the smooth functioning of the blockchain and its ability to process and verify transactions, the Bitcoin network aims to have one block produced every 10 minutes or so.

However, if there are one million mining rigs competing to solve the hash problem, they'll likely reach a solution faster than a scenario in which 10 mining rigs are working on the same problem.

For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining every 2, blocks, or roughly every two weeks.

When there is more computing power collectively working to mine for bitcoins, the difficulty level of mining increases in order to keep block production at a stable rate. Less computing power means the difficulty level decreases. At today's network size, a personal computer mining for bitcoin will almost certainly find nothing.

All of this is to say that, in order to mine competitively, miners must now invest in powerful computer equipment like a GPU graphics processing unit or, more realistically, an application-specific integrated circuit ASIC. Some miners—particularly Ethereum miners—buy individual graphics cards GPUs as a low-cost way to cobble together mining operations. Say I tell three friends that I'm thinking of a number between one and , and I write that number on a piece of paper and seal it in an envelope.

My friends don't have to guess the exact number; they just have to be the first person to guess any number that is less than or equal to the number I am thinking of. And there is no limit to how many guesses they get. Let's say I'm thinking of the number There is no "extra credit" for Friend B, even though B's answer was closer to the target answer of Now imagine that I pose the "guess what number I'm thinking of" question, but I'm not asking just three friends, and I'm not thinking of a number between 1 and Rather, I'm asking millions of would-be miners and I'm thinking of a digit hexadecimal number.

Now you see that it's going to be extremely hard to guess the right answer. If B and C both answer simultaneously, then the analogy breaks down.

In Bitcoin terms, simultaneous answers occur frequently, but at the end of the day, there can only be one winning answer. Typically, it is the miner who has done the most work or, in other words, the one that verifies the most transactions.

The losing block then becomes an " orphan block. Miners who successfully solve the hash problem but who haven't verified the most transactions are not rewarded with bitcoin. Here is an example of such a number:. The number above has 64 digits. Easy enough to understand so far. As you probably noticed, that number consists not just of numbers, but also letters of the alphabet.

Why is that? To understand what these letters are doing in the middle of numbers, let's unpack the word "hexadecimal. The decimal system uses as its base factors of e.

This, in turn, means that every digit of a multi-digit number has possibilities, zero through ninety-nine. In computing, the decimal system is simplified to base 10, or zero through nine.

In a hexadecimal system, each digit has 16 possibilities. But our numeric system only offers 10 ways of representing numbers zero through nine.

That's why you have to stick letters in, specifically letters a, b, c, d, e, and f. If you are mining Bitcoin, you do not need to calculate the total value of that digit number the hash. I repeat: You do not need to calculate the total value of a hash. Remember that analogy, where the number 19 was written on a piece of paper and put it in a sealed envelope? In Bitcoin mining terms, that metaphorical undisclosed number in the envelope is called the target hash. What miners are doing with those huge computers and dozens of cooling fans is guessing at the target hash.

Miners make these guesses by randomly generating as many " nonces " as possible, as fast as possible. A nonce is short for "number only used once," and the nonce is the key to generating these bit hexadecimal numbers I keep talking about. In Bitcoin mining, a nonce is 32 bits in size—much smaller than the hash, which is bits. The first miner whose nonce generates a hash that is less than or equal to the target hash is awarded credit for completing that block and is awarded the spoils of 6.

In theory, you could achieve the same goal by rolling a sided die 64 times to arrive at random numbers, but why on earth would you want to do that? The screenshot below, taken from the site Blockchain.

You are looking at a summary of everything that happened when block was mined. The nonce that generated the "winning" hash was The target hash is shown on top. The term "Relayed by Antpool" refers to the fact that this particular block was completed by AntPool, one of the more successful mining pools more about mining pools below.

As you see here, their contribution to the Bitcoin community is that they confirmed transactions for this block. If you really want to see all of those transactions for this block, go to this page and scroll down to the heading "Transactions.