The popularity of digital currencies has snowballed in recent years. Though there are more than 10,000 cryptocurrencies in existence, Bitcoin has managed to stay on the top for decades. As per current data, the price of one Bitcoin is a whopping 69,271.90AUD.
One question that haunts curious minds is what bitcoin mining is. The term has been running around the internet for some time now!
Here is some information on Bitcoin mining that will help you understand the concept better.
What Is Bitcoin Mining?
Mining Bitcoin refers to the process of adding new bitcoins to circulation. Bitcoin experts mention only 21 million bitcoins can be mined. Cryptocurrencies data shows around 18.77 million bitcoins were mined as of Aug 2021, and only 2.3 million more can be mined. When all 21 million bitcoins are created, the block rewards will not be available to miners, and they have to depend on fees from transactions of cryptocurrencies for revenue.
How Bitcoin Mining Works?
Bitcoin mining is similar to unearthing mineral resources. Miners require a vast amount of energy, money, and time to mine bitcoins. Like gold miners use heavy and advanced machinery to find gold from the earth’s crust, cryptocurrency miners use advanced computers to discover new blocks and add them to the Bitcoin blockchain ledger.
When a crypto-miner discovers a new block, he gets the right to fill the Bitcoin blockchain ledger with new transaction data. To create a new Bitcoin block, the miner should go through a process to solve a math problem. In the blockchain, miners shoulder the responsibility of generating new blocks and adding them to the chain. As per Bitcoin protocol, miners must create a new block every 10 minutes.
When other miners validate the block, it is added to the blockchain. There can be several reasons to validate the new block, like finding a reasonable solution to the network. When the new block is validated and added to the blockchain, the miner who found the solution receives the reward for the new block.
Each mined block stores records of transactions performed in a certain period. When they add the new block to the Bitcoin blockchain, they also update their registration.
Here are different stages of mining bitcoins.
1st Stage- Transaction
Mining a new block of bitcoin starts when a user wants to send a certain number of bitcoins or cryptocurrencies to another user. If you send the cryptocurrency amount, you initiate a bliss transaction with the data stored in the crypto wallet. The transaction is not completed until miners in the network confirm it. The miners create a new block, enter the block’s transaction information, and wait for other users to validate it.
2nd Stage- Compilation
As per recent data, in December 2020, around 330,000 daily bitcoins transactions were recorded. Thus, you can see several pending transactions exist in the network at any given minute. The pending transactions are gathered and arranged in groups at mining nodes.
Multiple bitcoin miners collect the same transactions from these mining nodes, create a new block, and enter transaction details in the new block. When the transaction details are successfully entered and the block is mined, the pending transaction is removed from the list. The miner who mines the new block gets the reward for the newly created block.
3rd Stage – Training
As mentioned earlier, multiple miners are working to include the same transactions and create a new block. If any transactions you have included in the block are completed, they are automatically removed from your block. The new block you create is not valid and is called a “candidate.” When you have a valid proof of work, it becomes valid on the bitcoin blockchain network.
The new block should have hash from the previous block, data from mining competition, and Merkle root. In simple words, it should have a timestamp, objective of the algorithm of Proof of work, and nonce(number used only once).
To sum up, the bitcoin mining process is quite complicated. Due to the exorbitant price of bitcoin, many people cannot buy bitcoins with traditional currency. If you are interested in bitcoin mining, you should understand all stages of bitcoin mining in detail.