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What is Bitcoin Mining?

Before reading further, please understand that most bitcoin users don’t mine! But if you do mine, then this bitcoin miner is probably the best value for money. The profits from bitcoin mining are very competitive and the volatility of the bitcoin price makes it difficult to realize monetary gains without also predicting the price. Mining makes sense if you intend to mine for fun, to learn, or to support the security of bitcoin, and don’t care if you make a profit. If you have access to large amounts of cheap power and the ability to manage large equipment and operations, then you can make a profit from mining.

If you want to acquire bitcoins on a fixed mining capacity basis, but you don’t want to run the actual hardware yourself, then you can buy mining contracts.

Another tool that many people like to purchase is a bitcoin debit card, which allows people to top up their debit cards with bitcoins.

What is bitcoin mining?

Bitcoin mining is much like a giant lottery where you can use your mining hardware to compete with everyone else on the network to earn bitcoins. Faster bitcoin mining hardware is able to make more attempts per second to win this lottery ticket, while the bitcoin network itself adjusts about every two weeks to keep getting a winning block hash every ten minutes. As a whole, Bitcoin mining ensures that transactions are secure and that transaction records are stored in Bitcoin’s public book, the blockchain. By drawing a random lottery, where electricity and specialized equipment are the price of admission, this expense is used to undermine the size of the Bitcoin network, which is achieved by the hashing power spent by all mining participants.

Technical Background

During mining, your bitcoin mining hardware runs a cryptographic hash function (two rounds of SHA256) on what is called a block header. For each new hash attempted, the mining software will use a different number as a random element of the block header, this number is called a random number (nonce). Depending on the random number and the other contents of the block header, the hash function will produce a hash similar to the following.

93ef6f358fbb998c60802496863052290d4c63735b7fe5bdaac821de96a53a9a

You can think of this hash as a very long number. (It’s a hexadecimal number, and the letters A-F stand for 10-15.) To ensure that blocks are discovered approximately every 10 minutes, there is a so-called difficulty goal. To create a valid block, your miner must find a hash that is below the difficulty target. So if the difficulty target is 10000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

Any number starting from zero will be below the target, e.g.

0787a6fd6e0782f7f8058fbef45f5c17fe89086ad4e78a1520d06505acb4522f

If we lower the target to 0100000000000000000000000000000000000000000000000000000000000000000000000000

We now need to start with two zeros in order to go below that target:.

00db27957bd0ba06a5af9e6c81226d74312a7028cf9a08fa125e49f15cae4979

Because the target is such a large number with many digits, people usually use a simpler number to express the current target. This number is called the mining difficulty. The mining difficulty represents how much harder it is to generate the current block compared to the first block. So a difficulty of 70,000 means that to generate the current block, you have done 70,000 times more work than Satoshi Nakamoto did when he produced the first block. To be fair, mining hardware and algorithms back then were much slower and not as optimized as they are today.

To keep finding blocks about every 10 minutes, a shared formula was used to adjust for difficulty every 2016 blocks. The network tries to make changes to it so that with the current global network processing power, it takes about 14 days for 2016 blocks. This is why when the network capacity goes up, so does the difficulty.

Bitcoin Mining Hardware

CPU

Initially, mining with CPUs was the only way to mine bitcoins and was done using the original Satoshi client. To further secure the network and earn more bitcoins, miners have innovated in many ways, and in recent years, CPU mining has become relatively useless. You could mine for decades using a laptop and not mine a single bitcoin.

GPUs

About a year and a half after the network started, it was discovered that high-end graphics cards were more efficient at bitcoin mining and everything changed. CPU bitcoin mining gave way to GPUs (graphics processing units). The massively parallel nature of some GPUs allowed for 50x to 100x more bitcoin mining power, while using much less power per unit of work.

While any modern GPU can be used for mining, the GPU architecture AMD series was far superior to the nVidia architecture when it came to mining bitcoins, and the ATI Radeon HD 5870 became the most cost effective choice at the time.

FPGAs (Field Programmable Gate Arrays)

Much like the transition from CPUs to GPUs, the Bitcoin mining space pushed the technology food chain to field programmable gate arrays. With the successful launch of the Butterfly Labs FPGA “Single”, the hardware environment for bitcoin mining gave way to purpose-built hardware dedicated to bitcoin mining.

While FPGAs don’t offer the 50x-100x increase in mining speed that the CPU to GPU transition did, they do have the advantage of power efficiency and ease of use. A typical 600 MH/s graphics card consumes greater than 400 watts of power, while a typical FPGA mining device delivers a hash rate of 826 MH/s at 80 watts of power.

This 5x improvement allowed the first large bitcoin mining farm to be built to be operationally profitable. The Bitcoin mining industry was born.

ASIC (Application Specific Integrated Circuit)

The bitcoin mining space is now in the era of Application Specific Integrated Circuits (ASICs). An ASIC is a chip that is designed specifically to do one thing. Unlike FPGAs, ASICs cannot be reused to perform other tasks.

ASICs designed specifically to mine bitcoin can only mine bitcoin and will only be used to mine bitcoin in the future. Compared to all previous technologies, ASICs compensate for the inflexibility of ASICs by dissipating 100 times more power while reducing power consumption.

Unlike all hardware prior to ASICs, ASICs can be the “finish line” when it comes to disruptive mining technologies, with CPUs being replaced by GPUs, then by FPGAs, then by ASICs. There is nothing to replace ASICs now or even in the near future.

There will be incremental improvements to ASIC products and efficiency gains, but unlike previous advances in technology, there will be no products that offer a 50x to 100x increase in hashing power or a 7x reduction in power consumption. This makes power consumption on ASIC devices the most important factor for any ASIC product, as the expected lifetime of an ASIC mining device is longer than the entire history of bitcoin mining.

It is conceivable that an ASIC device purchased today will continue to mine two years from now if the power of the device is high enough and the cost of power does not exceed its output. Mining profitability is also determined by the exchange rate, but in any case, the more energy efficient the mining equipment is, the more profitable it will be. If you want to try your luck at bitcoin mining, then this bitcoin miner is probably the best value for money.

Bitcoin Mining Software

There are two basic methods of mining: on your own or as part of a bitcoin mining pool or by signing a bitcoin cloud mining contract and making sure to avoid bitcoin cloud mining scams. Almost all miners choose to mine in a pool because it moderates the luck inherent in the bitcoin mining process.

Before you join a mining pool, make sure you have a bitcoin wallet to hold your bitcoins. Next, you will need to join a mining pool and set up your miner to connect to that pool. With mining pools, the profits from each block generated by any member of the pool will be distributed among the members based on the amount of hash contributed by the members.

How much bandwidth does bitcoin mining take up? If you are using a bitcoin miner to mine in a pool, then this amount should be negligible, around 10MB/day. However, what you need is an excellent connection so that you can get any updates on your work as fast as possible.

This will allow pool members to get paid more frequently and consistently (this is called variance reduction), but the fees that the pool may charge will reduce the payments you get. Mining alone will give you large, infrequent payouts, and pool mining will give you smaller, more frequent payouts, but if you use a zero-fee pool for a long time, the payoff is the same for both.

Bitcoin Cloud Mining

By purchasing a bitcoin cloud mining contract, investors can earn bitcoins without having to deal with the hassles of mining hardware, software, power, bandwidth, or other offline issues.

The following services are listed in this section, which does not represent an endorsement of these services, but only as a comparison of bitcoin cloud mining. There are already a large number of bitcoin cloud mining scams on the market.

Hashflare Review: Hashflare offers SHA-256 mining contracts and can also mine more profitable SHA-256 currencies, with automatic payments still paid in bitcoin. Customers must purchase at least 10 GH/s.

Genesis Mining Reviews: Genesis Mining is the largest bitcoin and scrypt cloud mining provider. genesis mining offers three bitcoin cloud plans at reasonable prices. Also offers Zcash mining contracts.

Hashing 24 Reviews: Hashing24 has been involved in bitcoin mining since 2012. They have facilities in Iceland and Georgia. They use modern ASIC chips from BitFury that provide the highest performance and efficiency.

What is Bitcoin Mining?

Bitcoin mining is the process of adding transaction records to the public ledger of past Bitcoin transactions. The general ledger of past transactions is called a blockchain because it is a chain of blocks. The blockchain is used to confirm transactions that have occurred to the rest of the network.

Bitcoin nodes use the blockchain to distinguish legitimate bitcoin transactions from attempts to re-spend currency that has been used elsewhere.

Bitcoin mining is intentionally designed to be resource intensive and difficult so that the number of blocks a miner finds each day can remain constant. Individual blocks must contain a proof of workload that is considered valid. This proof of workload can be verified every time a block is received by another bitcoin node. Bitcoin uses the hash cash (HashCash) proof-of-work mechanism.

The main purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-proof consensus. Mining is also the mechanism used to introduce bitcoins into the system: paying miners for any transactions as well as a “subsidy” for newly created coins.

The purpose of both is to spread new coins in a decentralized manner and to incentivize people to provide security to the system.

Bitcoin mining is so called because it is similar to the mining of other commodities: it requires consumption and slowly provides new coins at a rate similar to that of mining commodities such as gold from the ground.

What is proof of workload?

A proof of workload is a piece of data that is difficult (expensive, time-consuming) to generate in order to meet certain requirements. Checking whether the data meets these requirements must be simple.

Generating a proof of workload can be a random process with low probability, so on average a lot of trial and error is required before a valid proof of workload can be generated. Bitcoin uses Hashcash workload proofs.

What is Bitcoin mining difficulty?

Algorithmic power-difficulty problem

Bitcoin mining a block is difficult because the SHA-256 hash of the block header must be lower or equal to the target in order for the block to be accepted by the network.

For the purpose of explanation, this problem can be simplified: the hash of a block must start with a certain number of zeros. The probability of computing a hash that starts with many zeros is very low, so many attempts must be made. In order to generate a new hash in each round, the nonce is incremented. For more information, see Proof of Workload.

Bitcoin Network Difficulty Metric

Bitcoin mining network difficulty is a measure of how difficult it is to find new blocks compared to the easiest method. A value will be recalculated for every 2016 blocks, such that if everyone mined at this difficulty, the previous 2016 blocks would have been created in two weeks. Under these conditions, a block would be generated every ten minutes on average.

As more and more miners join, the rate of block generation will rise. As the block generation rate rises, the difficulty will rise to compensate in order to drive down the block generation rate. Any block posted by a malicious miner that does not meet the required difficulty target will be rejected by everyone on the network and will therefore be worthless.

Block Reward (Block Reward)

When a block is discovered, the discoverer can reward themselves with a certain amount of bitcoins, which is agreed upon by everyone on the network. Currently this bonus is 25 bitcoins; for every 210,000 blocks, this value is halved. See Controlled Currency Supply or use the Bitcoin Mining Calculator.

In addition, the miner will receive a fee paid by the user who sent the transaction. This fee is intended to encourage miners to include transactions in their blocks. In the future, as the number of new bitcoins allowed to be created by miners in each block gradually decreases, these fees will represent a larger percentage of mining revenue.