How Bitcoin Mining Works
Bitcoin is a peer-2-peer transaction that is using software and hardware to operate, similar to other cryptocurrencies. To earn Bitcoin, you have two choices: buying Bitcoin from the market or mining it yourself. Mining is a process where Bitcoin network participants are working to verify and secure transaction information for the system. The system will reward them with the currency or Bitcoin token. It is the only way Bitcoin is being issued. Without workers, Bitcoin availability will never be increased.
The Process of Mining
Since cryptocurrency does not have any physical form, it must always be transferred and received via a system, but the Bitcoin system does not have any central authority to monitor nor verify transactions. So, the system is exposed to attackers and fraud. To protect the system and participants, it uses miners to make the system secure and verify transactions.
When a new transaction has been made, the transaction information will be broadcast to miners’ computers, also known as Nodes. These nodes will collect and verify the accuracy of transaction data to prevent double-spending, tracing for the source of the money, and checking for the volume being transferred. When gathering information, miners must ensure that all the transaction information is new and has never been recorded in the previous block.
They will repeat the process of verifying and adding new transaction information into a pool, called a memory pool. When memory pools are aggregated in layers large enough, they will be ordered to become a block. This block will be called a candidate block. To make a candidate block a valid block for the system, miners will need to hash a block.
Hashing a Block
Hashing is a process of converting an input of any length of data into a single string of numbers and letters sequence. The input required by the Bitcoin system will be; a summary of all transaction data in the candidate block, a link to the previous blockchain, also referred to as a parent block, a time of block being created. These inputs will be hash by hash function and will result in a unique hash value. The hash value will be unique and one of its kind at the time of it being produced. Altering information at the slightest in the issued block will change the hash value.
This put attackers into a tough spot. If attackers want to change the information inside the block for their personal gain, they must generate a new hash value for the block that they are attacking, and all following blocks come after, which takes time and energy, and almost impossible for the attackers to win the honest miners, unless there is 51% of miners playing against the system or having computer than more powerful than the entire system, but those are unlikely scenarios.
The hash value also referred to as “digital fingerprint,” will act as an identification code to secure the information stored inside the block. However, getting a hash value is difficult. Miners must answer a cryptographic puzzle with the Secure Hash Algorithm 256, a hash algorithm used by the system. The miners must produce a nonce or a random number that after hash will be valued less than or equal to the one used in the latest block issued in the blockchain. It is a probability and mathematical problem because there are trillions of combinations of answers, and guessing would take forever, literally.
The Final Stage of Mining
Assuming the miner arrives at the correct answer for the cryptographic puzzles before other miners, the miner will get to broadcast his block into a blockchain (a series of secured information linked by hashed value sequences). Other participants will check for accuracy and later create a new block upon it, and the cycle continues.
Mining uses high electric power and computer power, and some miners find that work together helps them mine faster. Since there are no rules prohibiting working in a group, they combine their available resources to hash information faster, and if they got rewarded, it would be shared, either equally or based on workers’ contribution. This combined computer power between a group of people is called the Mining pool. Currently, miners are working in groups, and sole workers are rare to be found. If one miner wants to go solo, he or she will have to invest a large sum of money on the computers alone, but sharing is cheaper and more effective. Unless a billionaire wants to mine Bitcoin, then he or she could go bulldozer.
As more and more mining pools increase both in size and numbers, the competition stiffened. It increases demands for hashing power, and tools can be bought with money. Mining became a game of resources and time, and fighting alone without an army of mining tech to support the mining farm is to fight a losing battle. Currently, there is a new investment that has been established under the paradigm of Bitcoin and Cryptocurrency. Investing in hashing power and trading the power for others is also an option.
The world is changing, and it changes fast. Once being miners was to sit in a dark dungeon in the dept’s mountain hall mining for ores and gold, but now in a fully lit fluorescent light hall, stack and mount of the computer hardware’s humming a sound — the sound of wealth.
