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In this guide, we take a look at bitcoin mining – what it is, how it works, how it influences world economy, and whether it’s something that can generate profit for individuals.
Very often, we hear individuals talk about Bitcoin mining. What comes to the mind of most people is the conventional way of mining gold and other mineral resources which involves making use of pickaxes and diggers to dig the ground for a gold mine and it turns out that the analogy is quite similar.
While that thought seems exciting, Bitcoin mining is accomplished by supercomputers with a fast processing speed that can puzzle out complex permutations and codes which cannot be handled by the human brain as these complex problems give the computers a lot of difficulties. This is why the effort put in by a computer handling complex calculations is synonymous to a gold miner looking for gold in the ground.
Recently, it was discovered that the probability of getting a solution for one of these permutations is 1 in 13 trillion and this would be further discussed in this article. Bitcoin mining basically provides two outcomes.
First, the result obtained when Bitcoin is mined over the network is a replica of the same value which is not far fetched from the process of gold extraction. The other result is ensuring the trustworthiness and reliability of the Bitcoin payment solution by documenting all transactions done with Bitcoin. While this explanation may seem bogus and unclear, the various subtopics in this guide details all there is to know about Bitcoin.
Whenever Bitcoin is transferred or received it is regarded as a “transaction” and several ways by which a transaction can be made are through; retail stores, or buying from the internet, and evidence of payment is printed at ATM spots or banks. This standard procedure is also carried out by Bitcoin miners to ensure transparency by piling transactions together in the form of “blocks” in a general record known as “blockchain”. Nodes are similar to account statements which can be retrieved to check transaction history over a couple of months. They store all documentations of the blocks for future reference.
When blocks are added to a blockchain regularly, it is pertinent for Bitcoin miners to ensure that all records are accurate, and more importantly that the mined Bitcoins are not identical as every Bitcoin should be peculiar to itself. It is much easier to detect counterfeit banknotes when someone walks into a convenience store to purchase an item which is why bitcoin miners make the effort to scrutinize every block in the blockchain.
It is very easy to falsify information on the internet as with Bitcoin and other cryptocurrencies that are computerized. Take for instance if a duplicated $100 bill is taken along with the original to a convenience store and out of curiosity the clerk decides to examine the notes and then discovers that they have the same serial number.
What the store attendant does is to return the counterfeit which is similar to what a Bitcoin miner does which is to ensure there are no duplicates. In situations where a duplicate error occurs and the counterfeit is spent, over half of the mining power is consumed from the network. The increasing value of Bitcoin makes it impossible for fraudsters to duplicate the currency as several security measures are put in place to prevent it.
There are several steps taken by Bitcoin miners to obtain digital currencies but they are explained in two steps. The first thing miners do is to accumulate documented transfers of about 1 megabyte (MB) in size which can vary in quantity from one transfer to numbers reaching ten thousand with the data of the transfer being a key determinant of the data size.
Secondly, Bitcoin miners must attempt to increase the number of blocks on the blockchain, and this can be achieved by making use of fast processing computers to resolve rigorous and complex permutations. What these Bitcoin miners are trying to obtain is a hash 64-digit hexadecimal number that is lesser in value or equivalent to their aim.
Usually, a miner programs his computer to deliver an output of hash at a speed called megahash every second (MH/S), gigahash every second (GH/S) or as high as terahashes in a second (TH/S) and doing this consistently until all 64-digit numbers have been exhausted or the right one found. It is more of guessing than actual calculation in this scenario.
With a very unfavorable odd of one in 13 trillion and an enormous number of users over the world constantly making transactions, blocks are verified and added to the blockchain in the space of 10 minutes but may vary due to size and other factors on some occasions.
The Bitcoin network is designed to log as much as seven transactions in split seconds and this is done to ensure fast delivery to the blockchain. For example, Verve may be integrating payments for customers at 24,000 transactions in a second but the increasing number of users will result in more transactions initiated in 10 minutes and a decline in the number of transactions processed in that time frame. As a result, the standard protocol for processing payment is changed and regulations need to be adjusted.
The troubling issue in regards to the protocol for processing payment is called “scaling”. Bitcoin miners are constantly making an effort to address the issue of scaling but are yet to completely fix it. However, a glint of hope seems feasible as two important points have been raised on the issue. Major stakeholders have proposed two options;
With the numerous benefits of the Internet reaching financial services, making payment for goods and services rather easy, there has been an increase in the demand for secure payment portals. Bitcoin, which has become a widely accepted means of payment, has recorded an all-time high of half a million daily transactions.
The miners, who are responsible for verifying every single transaction, go through a lot of work in doing this and are rewarded for their efforts. in adding blocks to the blockchain.
Bitcoin’s much anticipated halving for the third time happened this year and miners in the cryptocurrency industry seem to be unsettled about it because the newly produced block is the 630,000th triggered the third sequence on the Bitcoin network. The newly produced block now holds 6.25 Bitcoin each and it was launched in China by Antpool; one of the corporations responsible for using the most intensive processing power in the country.
The third halving which took place on the Bitcoin network in May 2020 has caused a decline in the profits which miners get from 12.5 to 6.25 Bitcoin per block. The previous halving saw a decrease from 25 to 12.5 Bitcoin and the first halving from 50 to 25 BTCs in a block.
What halving does to freshly mined Bitcoin is that the value of a newly produced digital currency will reduce from 1800 to 900 BTCs per block. This also implies that the generated revenue of Bitcoin for a day decreases to $8 million from about $15 million while going for $8,600 per Bitcoin.
The processing power and speed of transactions on the network are also affected because revenue is decreased, and as such, there will be cutbacks on electricity usage and other logistics. There are still several unknowns about the effects of the third halving and Bitcoin miners continue to hope the impact is minimal.
Since the Bitcoin industry is not regulated by the government or reputable financial institutions like banks, there is still a lot of skepticism on how secure the network operates. On the other hand, the independence and lack of financial supervision provided are greatly enjoyed by many as it gives them control of their money and what to do with.
All payments made using the platform are however documented and easily accessible thereby reducing the possibility of a counterfeit BTC being used or spending stolen Bitcoins. Unlike traditional financial institutions whose records can be altered, the blockchain network contains unalterable transactions that are transparent for anyone to look up.
It is however possible to lose your BTCs if you mistakenly enter your Bitcoin details in an insecure or phishing website as several cases of fraud and thefts have been recorded. In conclusion, it would be better off long term if Bitcoin had a supervisory body responsible for seeing to their operations as this could give a lot more individuals confidence to use the network.