Bitcoin Mining

by Birgit N. Affiliate Marketer

Bitcoin Mining
The term mining, as it refers to Bitcoin, is the process of creating new Bitcoins. The mining process serves two main functions: to add transactions to a block and to create new Bitcoins. In order to successful mine, a user has to compile recent transactions that existing Bitcoins have been involved in into blocks and then working towards solving a complex computer puzzle. The miner that compiles and solves the problem first has the ability to place the next block in the chain and receives a monetary incentive in the form of Bitcoins as well as receiving the new Bitcoin.

Security of the Network
The process of Bitcoin mining is not a centralized process. This means that anyone with an Internet connection and Bitcoin mining hardware can mine Bitcoins. The reason that the decentralization of the Bitcoin mining process is vital to the security of the Bitcoin crypto-currency is that all decisions are made on consensus. For example, if there are questions about the validity of adding a Bitcoin block to the block chain, a simple majority vote will decide.

Of course, this system does have a weakness. If any one person or organization controls more than half of the Bitcoin network's mining power, the block chain can be corrupted. This is one of the main reasons that Bitcoin offers an incentive to miners. It draws miners into the mining power and keeps the power balanced and fair.

Block Reward
When Bitcoin was introduced in 2009, the incentive for miners to mine was known as the block reward. The Bitcoin system was created so that the amount of new Bitcoin that is released with each mined block is halved for every 210,000 blocks mined, or roughly every four years. This system was designed to boost Bitcoin mining in the early years and then slow production as the number of Bitcoins in circulation reach 21 million, the cap. No additional Bitcoins will be mined once that number has been reached.

Block rewards are the main reason that Bitcoin miners do what they do today. As a matter of fact, it is the only incentive offered to miners today.

Mining Difficulty
So, how hard is it to get started mining Bitcoins? The short answer is, it depends. The Bitcoin network is set up so that the system automatically adjusts the difficulty of mining every two weeks based on the current level of mining activity. The more miners that are mining, the harder the blocks are to solve. The fewer miners, the easier the blocks are to solve. The idea behind this approach is to keep the discovery of blocks at a near constant rate.

Mining Hardware
As mentioned previously, anyone with an Internet connection and Bitcoin mining hardware can start mining. While typical desktop and laptop computers could be used to mine Bitcoins in the past, the only way to do it profitably today is to use an ASIC computer specifically designed to mine Bitcoins. There are several companies that are involved with making Bitcoin mining hardware with companies like Bitfury and HashNest leading the industry. Other hardware manufacturers include KnCMiner and Butterfly Labs, however this list isn't exhaustive.

Mining Pools
Mining pools have been formed to give individual miners a better chance of finding a block and solving the equation first. Mining pools are owned and operated by third party companies and help defray the cost of mining and coordinate multiple miners in a cooperative effort to find and solve blocks and then sharing the block rewards. This process allows each miner to receive a steady flow of Bitcoin starting at the very minute they activate their miner and begin mining, which allows mining to be a more profitable endeavor than attempting to go it alone.

The Bottom Line
The process of Bitcoin mining allows new Bitcoins to be introduced into circulation, at least until the 21 million Bitcoin cap is reached. In order to encourage new Bitcoin creation, the system is set up to reward miners for creating new Bitcoins by offering a block reward to the first person who successfully solves a block. The only way to successfully mine Bitcoins is to purchase the latest ASIC mining hardware armed with the latest mining chips in order to overcome the increasing complexity of the puzzles. And miners who operate alone have a better chance of making a profit by joining a mining pool.

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