What is Bitcoin Mining
“Mining" is a metaphor for the act of nodes providing the computing power to help the blockchain network do the ledger; you'll learn about the consensus mechanism, common mining equipment, and the impact of halving on the market
Bitcoin uses “Proof-of-Work (PoW)”, a mechanism of solving problems through computer mining power in order to obtain the accounting right, and the successful completion of the mining will be rewarded with new “bitcoin”, so the computing power will have a direct correlation with the revenue.
Proof-of-Work(PoW)
The consensus algorithm is a critical component of the blockchain network because it is the agreement between all blockchain network participants and nodes to agree (consensus) on the current state of the distributed ledger. The Bitcoin network achieves consensus through the PoW mining mechanism.
Bitcoin mining is the use of proof of work to process transactions by continuously computing and verifying them using hardware devices with computational power, making the ledger easy to verify but difficult to tamper with, ensuring network security and synchronization across the network, and earning bitcoin fees as a reward. The operators of bitcoin mining are called miners.
The essence of mining is to compete for the mining power to meet the required Nunce value by enumeration. Furthermore, mining necessitates a block hash value with several zeros in front of it, and the number of zeros required correlates with the mining difficulty. The Bitcoin network automatically adjusts the mining difficulty for all nodes every 2,016 blocks, based on total system hashrate, and the average time for block generation is around 10 minutes.
Bitcoin mining equipment
Because the output of bitcoin mining is proportional to the size of the node’s computational power, the battle for accounting rights has evolved into a battle for mining power between nodes. Bitcoin mining has progressed from central processing unit (CPU) mining to graphics processor mining (GPU) mining to application special integrated circuit mining (ASIC).
Because the total computational power of Bitcoin mining was low and relatively uncompetitive in the early days of Bitcoin, basic CPU could be used in mining. CPUs were replaced in 2010 by GPUs released by puddinpop’s CUDA Miner, which had a multi-core architecture and were better suited for parallel computing, which coincided with the working model of bitcoin mining.
Two years later, another hardware development company invented mining hardware devices that were about 200 times faster than GPU at the time, spawning the ASIC chip manufacturing industry and the entire bitcoin mining industry. Currently, bitcoin mining power is concentrated in a few large mining pools, with the top six pools accounting for more than 75% of the bitcoin network’s total computational power.
Image source: btc.com (https://btc.com/stats/pool?pool_mode=week)
Bitcoin Mempool
Before handing over user-submitted transactions to miners for packaging and uploading to the chain, they are aggregated and stored in the Bitcoin mempool, which is unique to each node in the Bitcoin network. Due to the limited capacity of the Bitcoin network to process transactions and the storage capacity of the nodes, once the total data volume of transactions in the mempool reaches its maximum, transactions with lower handling fees are deprioritized, and transactions with higher handling fees are processed first.
Bitcoin Halving
Bitcoin’s mining yield decreases as blocks are produced, in addition to the automatically adjusting difficulty with the total computing power of the network. Every block produced at the start of the Bitcoin network was rewarded with 50 BTC. However, every time the Bitcoin network generates 210,000 blocks, the bitcoin reward for each block is cut in half.
Given a block is created every ten minutes, the Bitcoin network will halve every four years. The bitcoin mining reward will eventually be reduced to zero in 2140, and the total number of bitcoins in circulation will reach a maximum of 21 million. Miners will no longer be able to earn mining rewards for mining new blocks after that date, but will only be able to earn fees from trading users.
One of the most important growth narratives in the crypto industry is the halving of Bitcoin. According to some theories (such as the S2F model), halving implies increased scarcity of bitcoin, which will eventually be reflected in the price. And, to date, every halving has pushed the price of bitcoin higher.
Highlights
- Bitcoin employs “Proof-of-Work (PoW),” a mechanism for solving problems using computing power, to obtain the accounting right, and successful completion of the accounting will be rewarded with newly issued “bitcoin,” implying that arithmetic power has a direct correlation with miners’ revenue.
- Miners have an incentive to improve the computing power of their equipment in order to earn more revenue, developing ASICs for the algorithm from the initial CPU and GPU; the cost of the equipment rises, and computing power is mostly concentrated in many large pools.
- Bitcoin issuance is halved every four years, implying that BTC is becoming increasingly scarce, which is an important story in the crypto industry. So far, each halving has resulted in a significant increase in bitcoin’s price.
What is Bitcoin Mining
“Mining" is a metaphor for the act of nodes providing the computing power to help the blockchain network do the ledger; you'll learn about the consensus mechanism, common mining equipment, and the impact of halving on the market
Bitcoin uses “Proof-of-Work (PoW)”, a mechanism of solving problems through computer mining power in order to obtain the accounting right, and the successful completion of the mining will be rewarded with new “bitcoin”, so the computing power will have a direct correlation with the revenue.
Proof-of-Work(PoW)
The consensus algorithm is a critical component of the blockchain network because it is the agreement between all blockchain network participants and nodes to agree (consensus) on the current state of the distributed ledger. The Bitcoin network achieves consensus through the PoW mining mechanism.
Bitcoin mining is the use of proof of work to process transactions by continuously computing and verifying them using hardware devices with computational power, making the ledger easy to verify but difficult to tamper with, ensuring network security and synchronization across the network, and earning bitcoin fees as a reward. The operators of bitcoin mining are called miners.
The essence of mining is to compete for the mining power to meet the required Nunce value by enumeration. Furthermore, mining necessitates a block hash value with several zeros in front of it, and the number of zeros required correlates with the mining difficulty. The Bitcoin network automatically adjusts the mining difficulty for all nodes every 2,016 blocks, based on total system hashrate, and the average time for block generation is around 10 minutes.
Bitcoin mining equipment
Because the output of bitcoin mining is proportional to the size of the node’s computational power, the battle for accounting rights has evolved into a battle for mining power between nodes. Bitcoin mining has progressed from central processing unit (CPU) mining to graphics processor mining (GPU) mining to application special integrated circuit mining (ASIC).
Because the total computational power of Bitcoin mining was low and relatively uncompetitive in the early days of Bitcoin, basic CPU could be used in mining. CPUs were replaced in 2010 by GPUs released by puddinpop’s CUDA Miner, which had a multi-core architecture and were better suited for parallel computing, which coincided with the working model of bitcoin mining.
Two years later, another hardware development company invented mining hardware devices that were about 200 times faster than GPU at the time, spawning the ASIC chip manufacturing industry and the entire bitcoin mining industry. Currently, bitcoin mining power is concentrated in a few large mining pools, with the top six pools accounting for more than 75% of the bitcoin network’s total computational power.
Image source: btc.com (https://btc.com/stats/pool?pool_mode=week)
Bitcoin Mempool
Before handing over user-submitted transactions to miners for packaging and uploading to the chain, they are aggregated and stored in the Bitcoin mempool, which is unique to each node in the Bitcoin network. Due to the limited capacity of the Bitcoin network to process transactions and the storage capacity of the nodes, once the total data volume of transactions in the mempool reaches its maximum, transactions with lower handling fees are deprioritized, and transactions with higher handling fees are processed first.
Bitcoin Halving
Bitcoin’s mining yield decreases as blocks are produced, in addition to the automatically adjusting difficulty with the total computing power of the network. Every block produced at the start of the Bitcoin network was rewarded with 50 BTC. However, every time the Bitcoin network generates 210,000 blocks, the bitcoin reward for each block is cut in half.
Given a block is created every ten minutes, the Bitcoin network will halve every four years. The bitcoin mining reward will eventually be reduced to zero in 2140, and the total number of bitcoins in circulation will reach a maximum of 21 million. Miners will no longer be able to earn mining rewards for mining new blocks after that date, but will only be able to earn fees from trading users.
One of the most important growth narratives in the crypto industry is the halving of Bitcoin. According to some theories (such as the S2F model), halving implies increased scarcity of bitcoin, which will eventually be reflected in the price. And, to date, every halving has pushed the price of bitcoin higher.
Highlights
- Bitcoin employs “Proof-of-Work (PoW),” a mechanism for solving problems using computing power, to obtain the accounting right, and successful completion of the accounting will be rewarded with newly issued “bitcoin,” implying that arithmetic power has a direct correlation with miners’ revenue.
- Miners have an incentive to improve the computing power of their equipment in order to earn more revenue, developing ASICs for the algorithm from the initial CPU and GPU; the cost of the equipment rises, and computing power is mostly concentrated in many large pools.
- Bitcoin issuance is halved every four years, implying that BTC is becoming increasingly scarce, which is an important story in the crypto industry. So far, each halving has resulted in a significant increase in bitcoin’s price.