Bitcoin Mining Process: As we all know, Bitcoins do not come from thin air. New Bitcoin units enter circulation through a process called Bitcoin mining. How exactly does Bitcoin mining work, you ask? Read on as we will discuss this process from start to circulation.
The Nature of Bitcoin
Bitcoin operates in a decentralized computer network that uses blockchain technology to track transactions involving this particular type of cryptocurrency. The computers in this network receive transactions as blocks. Processing these blocks then results in the creation of Bitcoins through mining. We can compare mining, in this case, to printing money.
The Bitcoin Mining Process Explained
Here is a step-by-step rundown that explains how Bitcoin mining works:
- The mining starts when the network receives new transactions. These are unverified transactions from user wallets and other applications that use Bitcoin. Each node in the network maintains a temporary pool of these transactions that miners attempt to verify by solving a complex mathematical problem called Proof-of-Work.
- Miners create a new block that contains transactions from the previous block. This block also includes a special transaction that pays the miner’s address a reward in newly minted Bitcoins.
- Miners start solving Proof-of-Work. Calculating the problem requires quadrillions of hashing operations in one second, so the miner runs it through a powerful state-of-the-art cryptocurrency mining rig. These are custom computers built specifically for Bitcoin mining, consuming large amounts of electricity and crunching massive volumes of data during the process. Once the rig solves the problem, it verifies the validity of the transaction block.
- The miner calculates Proof-of-Work simultaneously with other users, and when they are first to come up with a solution, they get rewarded with newly created Bitcoins. These Bitcoins immediately enter the global blockchain and, from this point, the successful miner can then spend these as cryptocurrency.
- Subsequent blocks then add further complexity to the Proof-of-Work computation. As miners add more blocks on top, the transaction exponentially becomes harder to reverse and is trusted more by the network.
Bitcoin mining is a practice in crypto that guarantees profits. But still, time and even the right equipment are needed to ensure you get something out from it. It pays to do your own research to know how you can make the most of this investment.