April 14, 2022

How does Bitcoin Mining work?



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There was once upon a time not so long ago, when mining was performed by individual ordinary CPU (Central Processing Unit) computers running the Bitcoin software. But those days are over.


The calculation power required to solve the mathematical problems was modest, with little computational power, individuals were able to extract a considerable amount of profits. The difficulty of the mathematical problems increased, leaving computers and normal CPUs obsolete because more computing power was required. Today, mining is primarily performed by large organizations with access to large amounts of computing power using ASIC (Application-Specific Integrated Circuit) machines.

The computational power required to mine for Bitcoin has increased exponentially over the years. In order to keep up with the demand, mining organizations have had to invest in increasingly powerful and expensive computer hardware. The race to stay ahead of the competition has resulted in a massive arms race in the Bitcoin mining industry.

The primary goal of mining is to confirm transactions and add them to the public ledger, known as the blockchain.

Miners achieve this by solving a computational puzzle known as a proof of work. The first miner to solve the problem gets to add the next bitcoin block to the blockchain and receives a reward in Bitcoin. The difficulty of the calculation problems is adjusted dynamically so that on average one block is added to the blockchain every ten minutes, the block reward is currently 6.25 Bitcoin.

As more miners join the network, the puzzles become more difficult to solve. This ensures that the Bitcoin network remains decentralized and secure. Mining is a critical component of the Bitcoin network. By contributing computing power to the network, miners help to confirm transactions and keep the Bitcoin network secure. In return, they are rewarded with Bitcoin.

Miners are paid transaction fees as well as a subsidy of newly created coins, called a block reward. This block reward is halved every 210,000 blocks or roughly every 4 years. The block reward started at 50 in 2009, decreased to 25 in 2014, and will continue to decrease. This diminishing block reward will result in a total release of bitcoin that approaches 21 million.

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