Bitcoin mining is a computational process that adds new bitcoins to the Bitcoin network by solving mathematical problems that are posed to verify transactions in the currency.
This guarantees the network’s integrity and acts as a transaction ledger. The process involves having a computer that produces different strings of characters in a bid to generate one that is closest to the target hash. The target hash usually consists of a 64-digit alphanumerical code. Once the computer finds a solution, it is awarded bitcoins.
How Bitcoin Mining works
Bitcoin works via a process called the blockchain. This verifies transactions that were recently added. On top of maintaining the blockchain’s integrity, verification also prevents double-spending.
Double spending happens when someone spends the same bitcoin twice. Since Bitcoin is a digital currency, it cannot be given physically to a cashier. Therefore, a blockchain prevents people from reusing their bitcoins.
When a valid code is found by a bitcoin miner, a block is added to the blockchain. This results in the bitcoin miner being awarded bitcoins.
The evolution of Bitcoin mining
In the early days of Bitcoin mining, a CPU could easily uncover new blocks. Later on, miners discovered that graphic processing units used for gaming were more efficient in solving the hashing problem. However, as more miners join the network, the complexity of creating bitcoins increases.
Today, there is specialized hardware used by miners known as application-specific integrated circuits (ASICs). These devices have a price range of $500 to $20,000.
Miners also team up to create mining pools that aim to solve the same problem and then split the profit.
What are the odds of mining a bitcoin?
Bitcoin’s goal is to add a new block to the blockchain every 10 minutes. Theoretically, this is the time it should take to mine a bitcoin. However, incredibly powerful computers can find new blocks faster.
Since there are new computers with greater power being added to the network every day, there is a need to increase the difficulty of verifying transactions to ensure that a stable flow of bitcoins is maintained.
In the recent past, mining has become very difficult. When it was first launched, Bitcoin had a mining difficulty of 1. At the end of November 2021, this difficulty level rose to over 22 trillion.
So, if you are wondering what are the odds of mining a bitcoin today, it is about 1 in 25 trillion. This is why high-powered machines are necessary if miners want to create a new block. These high-tech machines can achieve one terahash (trillion hashes) per second.
How profitable is bitcoin mining?
Recent studies indicate that Bitcoin mining is highly concentrated. The mining industry is controlled by about 10% of bitcoin miners. These miners control 90% of all Bitcoin mining activities. This is an indication that bitcoin rewards aren’t distributed proportionally in a bitcoin network. If you choose to mine independently, you will be competing with established entities with great capacities.
The number of bitcoin awards for each mined block has also considerably reduced over time. After every 210,000 blocks, or after about 4 years, the reward is halved. In 2009, the reward was 50 Bitcoins per block.
This decreased to 25 bitcoins in 2012. In 2016, it dropped to 12.5. Recently in 2020, the amount was reduced to 6.25, where it has remained to date. However, since the price has increased, the value of the rewards has also increased.
Should I join a mining pool?
The best chances of mining bitcoins are in a mining pool. Such pools work in a way that participants only get a small piece of a reward when a block is successfully mined by the pool. The high price of bitcoin can help add value to the fractional rewards.
However, in order to successfully mine bitcoins, miners should have an ASIC. If a person is unable to spend thousands of dollars acquiring the mining hardware, they should not join a mining pool. Bear in mind that bitcoin mining also requires high amounts of electricity to run the bitcoin equipment.
In the early days of bitcoins, mining was an easy task that easily awarded miners bitcoins. However, today the introduction of big players with highly advanced machines has complicated the process. This has made it extremely difficult to mine bitcoins.
With the chances of mining a bitcoin being 1 in 25 trillion, there are almost zero chances of successfully doing so. Gone are the days when you could easily mine using a computer in your home. In simple terms, bitcoin mining now requires a substantial outlay of money, huge computing power, and large amounts of electricity. For small miners, joining a pool is the best way of achieving profit via bitcoin mining.