It is no longer news that the adoption of digital currencies as a means of
making payment is rapidly gaining momentum around the world. Bitcoin,
which is the first example of the growing category of money known as the
cryptocurrency, is the most popular and widely accepted of them all.
Bitcoin is a peer-to-peer electronic cash system that was invented by a
software developer called Satoshi Nakamoto, and it is currently taking
the lead amongst other digital currencies. It is an electronic payment
system based on mathematical proof that is created and held
Bitcoin is also a decentralized form of cryptocurrency that
is independent of any central authority – meaning, there is no single
institution controlling the Bitcoin network.
This eBook is going to help you go beyond a basic understanding of Bitcoin
and the mining of it. When you are finished reading, you’ll be ready to
get started mining Bitcoins today!
What is Bitcoin Mining?
In traditional fiat currency systems, money is printed by the government
and released into circulation whenever it is needed. Bitcoins, on the
other hand, aren’t printed, rather they are mined.
Computers around the world ‘mine’ for coins by competing with each other using software that solves mathematical problems.
Bitcoin is mined by people, and increasingly, businesses using computing
power in a distributed network. It can be transferred electronically and
costs very little in transaction fees.
The first groups of people to stake their claim in Bitcoin mining were cypherpunks, cryptographers , technically-minded libertarians and multi-talented hackers.
Miners get rewarded in Bitcoins for each new block that they discover and
for every transaction that gets finalized. Bitcoin mining usually involves
two main aspects; these are: confirming transactions to the blockchain
and introducing new Bitcoins to the system.
The blockchain is normally kept in a chronological order to provide the
proof needed to complete transactions. Hence,
it makes it extremely
difficult and nearly impossible to undo transactions because it will
require new proof on not just one block, but on all the others.
The network is programmed in such a way that when two blocks (or
pending transactions) are found simultaneously, the entire Bitcoin
network works on the first block they’ve found. It follows a one-block-ata-time process so that no new block is solved until the penultimate block
has been finalized.
Then, whoever solves the block gets rewarded with
Bitcoins. The process of solving subsequent blocks continues on to the next block,
and it keeps going on and on in circles with a reward for each successful
block that gets finalized.
Bitcoin Mining Terminology
To begin your journey into Bitcoin mining, you will need to run software
with specialized hardware. We will go into further details about this in
the next few chapters. But first,
we are going to explain how Bitcoin
mining works by defining the basic technical terms that are commonly
used in mining. These terms include:
A block is a group of Bitcoin transactions that are collected during a set
period from current pending transactions.
These transactions are usually
entered into an ever-growing list of blocks, also known as the blockchain,
by the miner. It is clearly visible to everyone who is a part of the Bitcoin
network. It is estimated that a new block is created on average every ten
Proof of Work Hashing:
This is the function which miners perform to define a new block. It is
usually done to ensure that the Bitcoin blockchain is functioning properly.
Miners compete with each other to solve a cryptographic “puzzle,” known
as a hash, by using raw computational power.
When a miner correctly
hashes the current block, he successfully solves the “puzzle,” thus proving
his investment of work. He is then rewarded with a certain number of
This refers to the number of newly-created Bitcoins. Bitcoins usually
undergoes a halving process every four years (or every 210,000 blocks). As
first, the number was set to 50, then it was halved to 25 in late-2012, and
12.5 in mid-2016. It is the only way in which new Bitcoins can be created
by miners following the code’s rate and limit. This process is expected to
continue until all Bitcoins are created.
This is the measure of a miner’s computational power. It is the number of
hashes per the amount of time it took to solve them. The higher a miner’s
relative power is, the more solutions he is likely to find, thus earning
more Bitcoins for himself.
The unit of measurement of hashrate was
initially in hash per second H/s), due to the increasing speed of mining
hardware. However, H/s eventually began having prefixes with SI units
which consists of the following: