What is Bitcoin Mining & How You Can Mine Bitcoins
For the uninitiated, Bitcoin popularity has been greatly accelerated due to bitcoin mining, which is the process that involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle, and the miners employ immense computing power to solve it. The individual or ‘pool’ that solves the puzzle, places the subsequent block and wins a reward too.
Which helps miners ‘create’ and earn bitcoins, rather than having to buy them in exchange for real world currency (1 bitcoin was $2790 at the time of writing this article).
Miners earn the new bitcoins as well as transactions fees. The more bitcoins that are generated, the harder it becomes to generate new ones.
The verification of each transaction is achieved overtime through a mathematical proof of work called “Hashing”, but this also becomes harder to achieve overtime, and is indicated by a parameter called “Difficulty”. The random nature of the verification process helps make the transactions more secure.
However there is no probability of success. This is why superior hardware configuration shine, leading to a hardware race to not only beat other miners, but also to keep up with the increasing difficulty of mining.
Currently, more than 16 million Bitcoins are in circulation. Which are worth more than $15 Billion (According to a report by Guardian). Moreover, there is a limit to which bitcoins will be generated
According to an estimate, this limit will be achieved in 2140, and bitcoins will not be generated any further, and miners will only earn transaction fees after that.
CPU > GPU > FPGA > ASIC
Mining started with CPU-based processing. But soon it was discovered that GPUs (Graphics Processing Units), used in high-end gaming and video editing can also be utilized for this purpose, achieving far better results.
This led to sort of an arms race, where it wasn’t just gaming enthusiast utilizing their existing machine for mining, but all sorts of buyers going for the highest configuration graphics cards mindlessly to make their own powerful “Mining rigs”.
The next big idea was to use the configurable IC (Integrated Circuit) technology called FPGA (Field-Programmable Gateway Array) to assemble and program mining rigs.
ASICs (Application-Specific Integrated Circuit) were the next step of development after CPUs, GPUs & FPGAs. They are able to mine bitcoins at a higher “hash rate” (Speed of processing transaction).
ASIC mining has rapidly grown into the leading technology for Bitcoin mining due to its massive processing power and a very competitive price tag to match.
Mining Individually or In a Pool
Pool is a way for miners to put together their hashing power to solve a mathematical puzzle and spilt the reward equally according to the processing power they have contributed.
Mining is often done in pools because in a pool miners share risk and reward and new miners may find profitability by joining the right pool and having a keen eye on market shifts and knowing where to apply their processing power.
Is There an Active Bitcoin Scene in Our Country?
Bitcoin mining is definitely the talk of the town in our local market. We might be a bit behind in the technology curve, but there are some bitcoin based startups in Pakistan that seeks to promote bitcoin usage in the region, and help to educate masses about the this disruptive financial System.
For now, this should give you a roundup of the things to consider before thinking about affordability and profitability of a bitcoin mining rig. If you’re looking to make same extra cash on the side, mining may not be your cup of tea.
But if you are a highly technical technology enthusiast, and would like to invest in the possible future of the global economy, then right now is a good time to start.