How Are New Bitcoins Created? A Brief Guide to Bitcoin Mining

Bitcoin is often compared to gold, and one of the main factors of similarity is how both were obtained. Just like gold, new bitcoins are generated through the mining process.

In fact, the extraction of Bitcoin has a dual purpose: to allow the creation of new currencies and to facilitate the processing of transactions in the network.

How Are New Bitcoins Created? A Brief Guide to Bitcoin Mining
How Are New Bitcoins Created? A Brief Guide to Bitcoin Mining

Another parallel to the precious metal is that a limited amount of bitcoins can be extracted: no more than 21 million coins. Almost 17 million bitcoins were already extracted in 2017.

Exploration can be a very competitive task as new bitcoins are created at a fixed and predictable rate. These values were defined by Satoshi Nakamoto, the creator of Bitcoin, in the white paper published in 2008.

The more minors join the network, the harder it will be to get benefits for each one of them. For this reason, minors must remain very competitive to continue to receive bitcoins as a reward for validating transactions.

 

What You Need To Start Mining?

 

New Bitcoins Created - Mining

 

Bitcoin Mining is the process of adding records of a new transaction to Blockchain, the public accounting book of all transactions that have taken place on the Bitcoin network.

New transactions are added approximately every 10 minutes to stacks called “blocks,” hence the name Blockchain. The general ledger is needed so that nodes in the Bitcoin network can always validate valid transactions.

To become a Bitcoin Miner, a person first needs computer and mining software like GUIMiner. This program uses the resources of the computer to perform complex mathematical calculations.

If a minor succeeds in solving his mathematical problem, he creates a new block and receives a certain amount of Bitcoins as a reward, known as a “blocking reward.”

Every 210,000 blocks, or, roughly, every four years, the block reward is halved. It started at 50 Bitcoin per block in 2009, and in 2014 it was halved to 25 Bitcoins per block.

However, mining on personal computers has only been feasible in the early years of Bitcoin. By now, the network is so competitive, that using specialized hardware is the only way to make a profit.

The first ASICs – or Application-Specific Integrated Circuits – were introduced in 2013, designed specifically for the purpose of mining from the start.

Despite the existence of such specialized equipment, the situation has not become easier for minors, as more and more efficient ASICs are coming onto the market. And the problem of paying for the electricity bill is only compounded by new appliances that consume a lot of energy.

Today, there are many leading companies designing and producing mining equipment. Among them are Bitfury, Bitmain. You can also find used devices on eBay or Amazon.

As a reminder, miners use their hardware to validate valid transactions, wrap them in blocks, solve math problems during the hashing process, and, after finding a correct solution, add new blocks to Blockchain.

 

What is ‘Hashing’?

New Bitcoins Created - hashing

Bitcoin uses an SHA-256 cryptographic hash function for encryption. This algorithm lets you capture data of any size and convert it to a string of a certain predefined size. The resulting string is called a hash, and the process of applying the hash function to the random input is called hashing.

It is impossible to predict what the input hash will be before it is calculated. The goal of the miners is to continue to provide the hash function with various inputs until a particular hash value is below a certain threshold, the so-called “difficulty” of a network.

The difficulty automatically adjusts each block of 2016 – or about every 14 days – according to the network’s increasing or decreasing combined processing power.

If the network has become more powerful in the last blocks of 2016, the difficulty value will be reduced to make it harder to find a valid hash and vice versa.

Given the enormous computing power the Bitcoin network is currently deploying, billions of computer-generated assumptions are needed around the world until someone finds the right hash value. And if you are the first, congratulations! You’ve just extracted a block and get a reward of 12.5 bitcoins.

 

Pitfalls To Avoid in Mining

 

As with any other activity, there are some risks to mining. Let’s look at a few mistakes that are usually made by miners:

You should not start without extracting the preparations. Since this is a highly competitive sphere, profitable mining requires careful planning and preparation. You can find many examples of people who have bought too much computer equipment without calculating all the operating costs and likely profit rates. Having determined that they can not maintain profitable operation with their equipment, these unfortunate miners generally need to resell at a substantial discount.

Now you should neither follow the hype nor pull out the most modern currency. From time to time, one or the other currency will overcool and many new miners will arrive, which will increase the difficulty of your network. As a result, mining becomes very difficult for everyone, and almost nobody can make a profit. This scenario has recently taken place with, for example, Ethereum.

What you need to do is take care of your PC. Mining places a heavy burden on computer processors who must constantly work at full capacity. Failure to do so properly may cause the hardware to malfunction.

 

Looking For Blockchain Offshore Services – Visit Binary Informatics

 

About : Binary Informatics is a Software Development Company based in Noida, India with development offices in Bay Area US as well. We are a team of 60 and we always strive to offer a high-quality work to our Clients. We provide solutions in Website Development, Web Application Development, Product Development, Mobile apps, Product Engineering, Enterprise Application, Big Data & BI solutions, Business Digitisation & Automation, Portals, eLearning, eCommerce, Social Networking, CRM, CMS, UI/UX etc

2 thoughts on “How Are New Bitcoins Created? A Brief Guide to Bitcoin Mining

  1. Sunita Madan Reply

    A perfect blog among all. This blog helps me to understand that how bitcoins are generated and the proper use of hashing in bitcoin. Thanks and looking for blogs on same topic.

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