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By now you probably know that most cryptocurrency coins are mined by computers, but how does this mining process work? Is it like mining for gold or any other minable material? Or is something different going on here?
Bitcoin is mined by using specialized computers. It used to be the case that anyone could mine Bitcoin on their home computers, and you could argue that this is technically true today; however, the average user is at a serious disadvantage today. Mining Bitcoin is now predominantly done using computers with expensive and specialized equipment called ASICs. ASIC chips consume huge amounts of electricity in order to mine Bitcoin and will mine the block much quicker than the average computer user.
Bitcoin mining helps secure the network and processes the transactions on the network. When you pay for something with your debit card, the bank will check that you have the money in your account to make the payment; the bank is the centralized authority here. With Bitcoin, the process is decentralized, so there isn’t one computer that belongs to a company that will verify your account, but rather thousands of computers who all have access to the ledger. This ledger is called ‘blockchain.’
For every block of transactions that a computer (miner) authorizes, they will be paid out a small amount of Bitcoin. In order to authorize these transaction blocks, the computer needs to work out a complex mathematical problem. This is why more powerful computers are preferred since they can try more solutions in a shorter period of time, increasing the chance that they will find the right solution in a timely manner. Once a solution to the block has been found, this is being broadcast to the entire network and is not an authorized part of the blockchain. Currently, miners can expect to be rewarded 12.5 Bitcoins per block, and a block is mined every 10 minutes or so. This reward halves every 210,000 blocks so while it is currently at 12.5 Bitcoin, originally the reward was 50 Bitcoin.
People often think that the point of Bitcoin mining is getting the Bitcoin reward; however, this is not the only reason mining exists. Mining is an essential part of the Bitcoin network and needs to be done to verify transactions. Offering a Bitcoin reward for mining is more of an incentive than the reason to do it. Even if no reward was offered, mining would still need to take place.