Bitcoin Mining

Bitcoin Mining is the term used to describe the creation of new Bitcoins using your computer.

It is nice to imagine you and your computer tapping away at some electronic interface and gradually unearthing a new Bitcoin. But unfortunately the real mechanism is much more mundane.

What you are actually doing when mining Bitcoins is helping in the verification processes that is required to validate Bitcoin transactions and also to provide security for the public ledger of the Bitcoin network, known as The Blockchain. You are then compensated for helping out with Bitcoins. Those Bitcoins come from both transactional fees and newly created Bitcoins.

Bitcoin Mining

By adding your computational power to the pool of other computers that are also ’mining’, you are running a process that verifies SHA-256 double-round hashes. And the speed at which you mine Bitcoins is therefore measured in hashes per second.

Modern hash rates are big and typically you would talk about millions of hashes per second MH/s, or even tera- (TH/s) and peta-(PH/s) hashes per second, which are one trillion and one quadrillion hashes per second respectively.

The number of Bitcoins that are awarded to miners is agreed by everyone else on the network.

That number will halve upon the completion of every 210,000 blocks. But remember that miners are also rewarded with fees paid by users who exchange Bitcoins. Over time this ’fee’ contribution will provide an ever-increasing percentage of everyone’s mining income.

Bitcoin mining is purposefully designed to be difficult so that the number of blocks found every day remains relatively stable. Technically-speaking the SHA-256 hash in a block’s header must be equal-to or lower-than the target for the block to be accepted into the network (and thus the miners to be compensated). It takes a lot of attempts to satisfy this criteria, so the faster a computer can make attempts, the faster you are mining.

How do I start Bitcoin Mining?

There’s essentially two ways you can get started in Bitcoin Mining. You can mine with your own computing hardware or by using a Bitcoin cloud mining facility.

This is the traditional and safest way to go about mining. You’ll need to buy or build some custom mining hardware, download some mining software (usually free and open source) and decide if you are going to mine solo or join a pool of like-minded souls.

Sign up to a Bitcoin Mining Pool

The quickest way to start mining would be to join a commercial mining pool who provide the hardware and software that’ll you’ll need. You sign a contract and sit back to watch the coins drop into your wallet. But with ease, comes risk.

Bitcoin Mining Difficulty

The difficulty of mining a Bitcoin is re-set for every 2016 blocks that are created. That new difficulty is a value that would have been required for the previous 2016 blocks to have been created by everyone mining Bitcoins in exactly 14 days - there are 20160 minutes in a fortnight, so that equates to one block every ten minutes.

As more people start mining, blocks will be created quicker than every ten minutes. So the Difficulty Metric of the next 2016 blocks will increase so that block creation is pushed back to one every ten minutes.

If anyone tries to release a block into the chain that does not reach the required difficulty, it will be rejected by everyone on the network and be worthless. So forging Bitcoins is not realistically possible.