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Bitcoin Mining and how they work

Bitcoin mining helps in the process of adding new bitcoins to the blockchain ledger.

By Ronald DavisPublished 2 years ago 3 min read
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Bitcoin Mining and how they work
Photo by André François McKenzie on Unsplash

What is Bitcoin?

The most popular form of all cryptocurrencies is Bitcoin. As a layman, all you need to know about Bitcoin is that it operates on a computer network that is decentralized. It keeps track of all the cryptocurrency transactions. Think of the decentralized network as a kind of distributed ledger that is responsible for maintaining the records.

New bitcoins are created or mined when the computers on the network do their job - verifying and processing the transactions. The processing is carried out in return for a Bitcoin payment.

How blockchain technology contributes to Bitcoin mining?

Blockchain, the technology that underpins numerous cryptocurrencies, powers Bitcoin most significantly. A blockchain is essentially a distributed ledger of all network transactions. A block and chain are formed by joining sets of approved transactions. Consider it as a lengthy public record that might look or perform somewhat like a continuous receipt. The process of adding a block to the chain is known as bitcoin mining.

How does Bitcoin mining actually work?

Mathematical calculations constitute a major part. And yes, you also need specific hardware that can execute such complicated calculations. They are technically known as ASICs (application-specific integrated circuits) that consume humongous amounts of electricity.

The power-consumption levels have alarmingly alerted environmentalists, so much so that, their objections have begun cutting down on the profitability of miners!

[Read Also: What is Bitcoin Investment?]

Here’s how the calculations go…

There are queries, and miners need to be the first to discover the right or the closest response to the query. To finish the mining process, all miners need, is a technique (of determining the correct number); the correct figure is technically termed as ‘hash’.

By quickly and randomly generating as many guesses as they can, miners attempt to predict the target hash, which consumes a lot of processing power. More miners joining the network only makes things harder and harder!

A miner will be rewarded with 6.25 bitcoins if he/she can successfully add a block to the network.

Here are the steps to Bitcoin mining

Step 1: Have the proper set of hardware first

The development of the more advanced mining technology, particularly application-specific integrated circuit (ASIC) chips, has made digital gold mining much more technology-based.

Application-specific integrated circuits (ASICs), graphics processing units (GPUs), and field-programmable gate arrays (FPGAs), and are the key pieces of bitcoin mining equipment.

Step 2: You need to download the Bitcoin mining software

There are numerous tools available on the internet that can be used to mine Bitcoin. The two most well-known command-line programs are BFGminer and CGminer. However, some programs offer a GUI (graphical user interface) for easier usage. Remember, there are certain mining pools that will offer their own software.

Step 3: Next comes – joining a mining pool

Bitcoin mining pools are meant for miner groups to collaborate. They share their hashing power, and then, divide the rewards based on how many shares each miner contributed to resolving one block.

You might find yourself mining bitcoins for more than a year without making any money if you don't join a Bitcoin mining pool. It is much preferable to distribute both the effort and the rewards rather than sit struggling with no gains!

Step 4: A Bitcoin wallet is to be created

Wallets can be downloaded into your system from the internet. By using a special address that is just yours, bitcoins are sent to your bitcoin wallet. Do protect your Bitcoin wallet from potential threats by either turning on the two-factor authentication or keeping it off from the internet.

Step 5: Finally, start with the Bitcoin mining

Your wallet has already been set up. You’re now only left with linking it to your mining rig. Now you may start mining bitcoin for cash. To confirm Bitcoin transactions, Bitcoin mining is done by performing a double SHA256 hash function verification that validates the transactions.

As a miner, you’ll be rewarded for your efforts in contributing your share to the entire computational power. As a beginner, understanding bitcoin mining and investment in a go can be overwhelming. Several people seek the help of a professional who knows the bitcoin market and can guide them with effective investment strategies. In California, you can consult Samuel Rad, Financial Advisor Los Angeles.

Happy mining!

Useful Resources:

How to Select your Fiduciary Financial Advisor?

Financial Planning Tips for 2022

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About the Creator

Ronald Davis

I am Ronald Davis, a blogger specializing in finance at www.samuelrad.com

Samuel Rad is an award-winning fee-based Financial Planner in Los Angeles, California.

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