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In the traditional economic system, states and governments can print banknotes as they please. This does not happen in Bitcoin due to two reasons:
- There is a limit of 21 million coins and you cannot change that amount.
- The number of coins released as a reward for work done is limited in the software and halved every 210.000 blocks by a process called halving.
Until the moment 21 million bitcoins are completely issued (approximately in the year 2140) new coins are put into circulation every 10 minutes. These coins are earned by miners in compensation for verification work done. The miners generate and validate the blocks that make up the great accounting book that the network represents blockchain Bitcoin.
If we think of gold mining, it consists of removing earth with heavy machines to obtain the precious metal in sufficient quantities to pay the operating costs and make a profit. The same occurs in bitcoin mining, except that the machinery is complex computer equipment that performs computational calculationsand as compensation, they get two incentives:
- New bitcoins that are put into circulation
- Transaction fees
How to be a bitcoin miner
El bitcoin mining process is always the same, the miners receive a new mathematical problem every ten minutes and the fastest to solve it takes the new coins that are put into circulation. This mathematical problem is based on random calculations that aim to find the solution and thus obtain block validation. Whoever cracks this will get the reward, as long as the rest of the network members confirm that the answer is correct. Before continuing, it is recommended that you check that it is a mining rig to continue understanding how to proceed to mine bitcoin and get a good return.
“The network times the transactions as they are hashed (made a cryptographic transformation) within a continuous chain of proof-of-work based on hashes. A record is being formed that cannot be modified without redoing the proof of work. The longest chain serves not only as proof of the sequence of events that occurred, but as proof that it came from the largest set of CPU power. As long as the highest CPU power is controlled by nodes that are not cooperating to attack the network, they will generate the longest chain and outcompete the attackers. "
Satoshi Nakamoto in the Bitcoin Whitepaper
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Role of mining
Because cryptocurrencies are a decentralized system, we need a formula that allows us to check all the operations carried out. It is important to prevent someone from being able to use the same amount of bitcoin more than once or being able to introduce counterfeit coins into the market. The mission of mining is basically to certify that nobody uses the coins twice and that nobody can introduce fake bitcoins into the market.
Thus, the miners review the transactions and gather the latest transactions created in a group called block. The set of blocks could be compared to the set of pages of a ledger (ledger) or ledger, which certifies all the movements and the balance of the users.
Cooperative of mining or pool
The more computing power you have, the easier it becomes to solve a block and therefore get a reward. It is for this reason that they were created the mining pools, to carry out joint work and thus obtain a fair reward among all members for the work done.
Joining under a pool guarantees us more possibilities to solve a block and get the reward. If we did it on an individual per user basis, we might never get a reward either out of sheer chance or because we had less computing power than the competition.
So partnering with other users who contribute mining machines ensures that we are more likely to get a reward.
The reward for the miner
Within the Bitcoin code it is established that when a block is validated, a certain amount of coins is obtained. Currently, 6,25 BTC is obtained for each new block validated, this is due to the third bitcoin halving that took place on May 11, 2020. We must bear in mind that the commissions for each of the transactions are added to this fixed amount of bitcoin.
In addition, it is important to keep in mind that, depending on the dynamic difficulty of the blockchain, the mining of each block happens approximately every ten minutes, but the reward has not always been that, but rather has been progressively reduced as the different halvings took place. of Bitcoin, which take place approximately every four years.
Every 210.000 blocks, the amount of bitcoin offered as a reward is cut in half, something known as halving. This implies that the value of each bitcoin has to increase for mining to continue to be profitable.
“By convention, the first transaction in the block is a special transaction that generates a new currency owned by the creator of the block. This adds an incentive for nodes to support the network, provides an initial way to distribute, and puts the coins into circulation since there is no authority to create them. This stable addition of a constant amount of new coins is analogous to gold miners who spend resources to put it into circulation. In our case, the resources are the CPU time and the electricity that are used. "
Satoshi Nakamoto in the Bitcoin Whitepaper
What do I need to mine bitcoin?
The first bitcoins were mined using the processors or CPUs of computer equipment because very few people were mining. In fact, at first only Satoshi Nakamoto was the one who mined in the Bitcoin network, and it is believed that other miners joined the process soon after. But as people joined mining, the difficulty increased due to the increase in computing power of the network, a situation that made it very difficult to obtain a reward. This is how the jump to graphics cards occurred because the GPU (graphics processor) have more computing power than the processor.
On December 16, 2009, version 0.2 of the Bitcoin software was released, which incorporated an interesting novelty, and that is that it allowed the use of several processors in the same system. That day marked a before and after.
What Bitcoin's vXNUMX enabled was the development of specialized machines for computing: the ASICs. Basically, an ASIC is a specialized computer that has many processors. The computational power of each of these systems is much greater and left mining using graphics cards completely obsolete. Although an ASIC cannot serve us as a normal PC, it they can perfectly execute the necessary instructions to carry out mining, in an extremely efficient way.
Difficulty and hash rate
We must understand that the more computer equipment is added to the network, the more its computing capacity increases. And at the same time, more competition is concentrated to obtain a reward.
La difficulty it is the necessary calculation to guarantee that the blocks are obtained every ten minutes. If new blocks were suddenly generated in less than 10 minutes on average over 2.016 blocks, Bitcoin would automatically reset itself to increase the complexity of the problem. The opposite would happen if the average in those 2.016 blocks exceeded 10 minutes.
El hash rate On the other hand, it is the processing capacity of the Bitcoin network for each of the computers that are added to it. The sum of the power of all the network equipment gives us as a result the hash rate fully on the network.
Bitcoin mining profitability
Depending on the power of the ASIC that we have and the pool in which we are, we will have more or less possibilities of obtaining bitcoin. Profitability depends on the value of Bitcoin, the difficulty of the network and the determining factor: the cost of electricity.
The price of electricity will be the one that really determines if Bitcoin is viable or not, if we will get compensation for the work done. Large mining farms are usually installed in countries or areas where there is access to cheap electricity, especially based on renewable energy, mainly hydraulic. Unfortunately in Spain, the high cost of electricity makes it practically unfeasible to mine Bitcoin.
How much does a bitcoin miner earn?
We must not only take into account the direct electricity needed to power the miner's equipment. TWe also need to cool all the heat they generate, so the electricity cost increases significantly.
We must take into account the cost of equipment acquisition and competition. What is the same: the number of machines that are operating on the network and that usually increases. This will make our mining operation together with the electrical cost may or may not be profitable.
Finally, the development of new specialized systems must be taken into account. Bitcoin mining systems are still under development and this may mean that our ASIC is obsolete at any time or, in other words, profitability is reduced.
