What You Need To Understand About Bitcoin Mining

Bitcoin mining is the process of the creation of new bitcoins. Altogether, there can be 21 million bitcoins by 2140. In the beginning of the summer of 2017, there have been a little over 16 million bitcoins in circulation.

Bitcoin mining is somewhat a misleading name because when most people hear it, they imagine goldmines and workers swinging axes into stones. Obviously, nothing like this happens with bitcoin mining, which is a digital process of adding new coins into the bitcoin network. Bitcoin mining is a computational process that you can start on a computer by having the hardware calculate complex math equations. You can do this at any time of any day. When you do so, you become a part of bitcoin network and contribute to the security and functionality of the network by allowing it to use your hardware.

The similarity between bitcoin mining and the mining of precious metals is that as the mining occurs, it adds to the supply. Also, as the process progresses, more and more power is needed. In the case of gold and other precious metals, it means that resources get exhausted in certain places and there’s need to dig deeper or to and start the process in new goldmines. In the case of bitcoin, it means that the complexity of the problems increases and the problems require more and more computer resources.

To ensure that people keep generating the coins and the process doesn’t stop, bitcoin network links the mining process to a difficulty rating. As more and more people join the network, the rating goes up, the complexity of the problems increases and it takes longer to solve them and to mine the coins. As the rating decreases, the complexity of the problems decreases, too.

Over the years, there have been tremendous changes in the hardware requirements for bitcoin mining. When bitcoin launched in 2009, it required very little hardware as there have been very few people on the platform and the difficulty rating was low. As the number of people joining the platform has been increasing, the rating has been increasing, too.

In 2009, the bitcoin mining software allowed anyone running it mine bitcoins by using the central processing unit (CPU) of a computer. Every computer has a CPU and back in 2009, the competition was very little. Satoshi Nakamoto has mined most of the coins in the first few months of the existence of the system. It didn’t take bitcoin miners long to figure out that they could also be using graphics processing units to compute the problems necessary for bitcoin mining. The graphics unit of a computer can solve mathematical problems more efficiently than the CPU and because of this people were able to mine bitcoins faster. However, GPU also consumes much more electricity than a CPU does. This was the first chapter in the history of bitcoin mining.

FPGAs and ASICs

how bitcoin mining works

After trying to mine bitcoins with CPUs and GPUs, engineers and programmers wanted to create hardware that would mine bitcoins more efficiently than regular computer hardware. This is how Field Programmable Gate Arrays (FPGAs) came into existence. An FPGA is an integrated circuit that can be configured after it is manufactured. This is where the word “programmable” in its name comes from. FPGAs could mine coins as fast as GPUs and much faster than CPUs. At the same time, they were using much less electricity compared to CPUs.

If you are interested in the technological aspects of bitcoin mining, you will inevitably see the term ASIC. ASIC is short for application-specific integrated circuit. ASIC is a microchip that was created specifically for bitcoin mining. The first ASIC became available in 2013 and it performed much better than a FPGA or GPU. However, ASICs also have a major disadvantage: while in operation, they generate a lot of noise and heat.

As these circuits started to hit the market, the need for electricity required to mine bitcoins also went up. As a result, bitcoin mining is not profitable in most parts of the world unless you have access to free electricity. In most cases, the costs of hardware investments and electricity costs make it not profitable to mine bitcoins using home or office computers.

However, there is a solution to this problem. You can buy cloud mining power, meaning that you can purchase power from a computer that is located in a different part of the world.

Cloud mining allows miners to mine new coins without having to buy new hardware. All miners have to do is pay a fee and cover electricity costs.

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