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It depends on how much data the transactions take up. That is correct. To earn bitcoins, you need to meet two conditions. One is a matter of effort; one is a matter of luck. This is the easy part. This process is also known as proof of work. The good news: No advanced math or computation is involved. You may have heard that miners are solving difficult mathematical problems—that's not exactly true. It's basically guesswork. The bad news: It's guesswork, but with the total number of possible guesses for each of these problems being on the order of trillions, it's incredibly arduous work.
In order to solve a problem first, miners need a lot of computing power. That is a great many hashes. If you want to estimate how much bitcoin you could mine with your mining rig's hash rate, the site Cryptocompare offers a helpful calculator. In addition to lining the pockets of miners and supporting the bitcoin ecosystem, mining serves another vital purpose: It is the only way to release new cryptocurrency into circulation.
In other words, miners are basically "minting" currency. For example, as of Nov. In the absence of miners, Bitcoin as a network would still exist and be usable, but there would never be any additional bitcoin. There will eventually come a time when Bitcoin mining ends; per the Bitcoin Protocol, the total number of bitcoins will be capped at 21 million. This does not mean that transactions will cease to be verified. Miners will continue to verify transactions and will be paid in fees for doing so in order to keep the integrity of Bitcoin's network.
Aside from the short-term Bitcoin payoff, being a coin miner can give you "voting" power when changes are proposed in the Bitcoin network protocol. The rewards for bitcoin mining are reduced by half every four years. When bitcoin was first mined in , mining one block would earn you 50 BTC. In , this was halved to 25 BTC. By , this was halved again to If you want to keep track of precisely when these halvings will occur, you can consult the Bitcoin Clock , which updates this information in real-time.
Interestingly, the market price of bitcoin has, throughout its history, tended to correspond closely to the reduction of new coins entered into circulation. This lowering inflation rate increased scarcity and historically the price has risen with it. Although early on in Bitcoin's history individuals may have been able to compete for blocks with a regular at-home computer, this is no longer the case. The reason for this is that the difficulty of mining Bitcoin changes over time. In order to ensure the smooth functioning of the blockchain and its ability to process and verify transactions, the Bitcoin network aims to have one block produced every 10 minutes or so.
However, if there are one million mining rigs competing to solve the hash problem, they'll likely reach a solution faster than a scenario in which 10 mining rigs are working on the same problem. For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining every 2, blocks, or roughly every two weeks.
When there is more computing power collectively working to mine for Bitcoin, the difficulty level of mining increases in order to keep block production at a stable rate. Less computing power means the difficulty level decreases. To get a sense of just how much computing power is involved, when Bitcoin launched in the initial difficulty level was one. As of Nov. All of this is to say that, in order to mine competitively, miners must now invest in powerful computer equipment like a GPU graphics processing unit or, more realistically, an application-specific integrated circuit ASIC.
The photo below is a makeshift, home-made mining machine. The graphics cards are those rectangular blocks with whirring fans. Note the sandwich twist-ties holding the graphics cards to the metal pole. This is probably not the most efficient way to mine, and as you can guess, many miners are in it as much for the fun and challenge as for the money. The ins and outs of bitcoin mining can be difficult to understand as is. And there is no limit to how many guesses they get. Let's say I'm thinking of the number There is no "extra credit" for Friend B, even though B's answer was closer to the target answer of Now imagine that I pose the "guess what number I'm thinking of" question, but I'm not asking just three friends, and I'm not thinking of a number between 1 and Rather, I'm asking millions of would-be miners and I'm thinking of a digit hexadecimal number.
Now you see that it's going to be extremely hard to guess the right answer. In Bitcoin terms, simultaneous answers occur frequently, but at the end of the day, there can only be one winning answer. Typically, it is the miner who has done the most work or, in other words, the one that verifies the most transactions. The losing block then becomes an " orphan block. Miners who successfully solve the hash problem but who haven't verified the most transactions are not rewarded with bitcoin. Well, here is an example of such a number:.
The number above has 64 digits. Easy enough to understand so far. As you probably noticed, that number consists not just of numbers, but also letters of the alphabet. Why is that? To understand what these letters are doing in the middle of numbers, let's unpack the word "hexadecimal. As you know, we use the "decimal" system, which means it is base This, in turn, means that every digit of a multi-digit number has 10 possibilities, zero through nine.
In a hexadecimal system, each digit has 16 possibilities. But our numeric system only offers 10 ways of representing numbers zero through nine. That's why you have to stick letters in, specifically letters a, b, c, d, e, and f. If you are mining bitcoin, you do not need to calculate the total value of that digit number the hash. I repeat: You do not need to calculate the total value of a hash.
Remember that ELI5 analogy, where I wrote the number 19 on a piece of paper and put it in a sealed envelope? In bitcoin mining terms, that metaphorical undisclosed number in the envelope is called the target hash. What miners are doing with those huge computers and dozens of cooling fans is guessing at the target hash.
A nonce is short for "number only used once," and the nonce is the key to generating these bit hexadecimal numbers I keep talking about. In Bitcoin mining, a nonce is 32 bits in size—much smaller than the hash, which is bits. In theory, you could achieve the same goal by rolling a sided die 64 times to arrive at random numbers, but why on earth would you want to do that?
The screenshot below, taken from the site Blockchain. You are looking at a summary of everything that happened when block was mined. The nonce that generated the "winning" hash was The target hash is shown on top. The term "Relayed by Antpool" refers to the fact that this particular block was completed by AntPool, one of the more successful mining pools more about mining pools below.
As you see here, their contribution to the Bitcoin community is that they confirmed transactions for this block. If you really want to see all of those transactions for this block, go to this page and scroll down to the heading "Transactions.
All target hashes begin with zeros—at least eight zeros and up to 63 zeros. There is no minimum target, but there is a maximum target set by the Bitcoin Protocol. No target can be greater than this number:. Here are some examples of randomized hashes and the criteria for whether they will lead to success for the miner:.
You'd have to get a fast mining rig, or, more realistically, join a mining pool—a group of coin miners who combine their computing power and split the mined bitcoin. Mining pools are comparable to those Powerball clubs whose members buy lottery tickets en masse and agree to share any winnings. A disproportionately large number of blocks are mined by pools rather than by individual miners.
In other words, it's literally just a numbers game. You cannot guess the pattern or make a prediction based on previous target hashes. Not great odds if you're working on your own, even with a tremendously powerful mining rig. The software incentivizes people to try to win Bitcoins and when they attempt to do so they are actually also protecting the software and keeping it from being vulnerable to attack. Bitcoin was structured to be deflationary , which is in contrast to most fiat money issued by central banks which tend to be inflationary as more and more money is printed and released.
So, as time goes by and demand for Bitcoin goes up, presumably the value of each individual one will go up. And because of this, you will often see in the Bitcoin community people who fervently hold on to their Bitcoins and refuse to sell despite the ups and the downs. And so that post became very popular and, in turn popularized the term hodl within the community.
For a more detailed explanation and history, read this article about the hodl meaning. In addition to these primary uses, people have begun using the bitcoin blockchain the technology underpinning bitcoin for other purposes, such as MIT issuing diplomas using the bitcoin blockchain. However, most of the time new and separate blockchains are created for experiments and new ideas. Some people associate bitcoin with criminals and many criminals were in fact early adopters of the technology.
In fact, it is much easier to track someone using bitcoin than cash. Law enforcement agencies have been able to track down numerous criminals because their activity permanently resides within the bitcoin blockchain. There are other cryptocurrencies that are focused on privacy and hiding your identity such as Monero , Dash and Zcash. The price of bitcoin and many other cryptocurrencies have gone up exponentially since bitcoin first became available.
Many people ask the following questions:. Like everything else, the value of bitcoin is determined by how much people are willing to pay for it and sell it for. In other words, the supply, demand and perceptions of what it is and what it can do. This is a good question, but it comes from an incomplete understanding of what currency really is. Currency being backed by something such as gold is a relatively new concept.
Currency being backed by gold or the faith people have in a government has been shown to be seriously flawed. For most of history, currency what represented value was not backed by anything at all. Early forms of currency such as seashells, cattle and even coins were not backed by anything in particular. This answer does not satisfy many people, though it is in fact the case. So, another way to think about it is that bitcoin is backed by mathematics and logic.
This is an oversimplification, but is a pretty accurate way to think about it. Another way to think of it is that bitcoin is backed by the amount of faith that people have in it. It is a way to send value directly to someone in a secure way, unlike anything the world has ever seen. It is useful, like gold, silver or a computer.
And people will pay for things that are useful. Like cash, you can keep your bitcoin in something called a wallet. A cryptocurrency wallet essentially stores the information that is needed to transact with the cryptocurrency. However, because this technology is still in its infancy, there have been many cases of bitcoin wallets being insecure and causing problems and even being outright scams. So, if you choose to use and hold bitcoin, it is recommended that you choose one of the best bitcoin wallets in order to protect your cryptoassets.
Some people say blockchain technology will transform the world as much as, if not more than, the internet did. Whether or not these will happen is uncertain, but those who begin to see the possibilities of blockchain will see that these are definitely possibilities. If you would like, you can dig deeper and learn more about how blockchain could transform our world by reading our explanation of what is blockchain. Please share your comments, questions and ideas below.
What do you think the future of bitcoin will be? Richard has developed and ran multiple online websites and communities with tens of millions of monthly visitors. He first discovered bitcoin and blockchain in and has been helping to educate others on its potential since then.
Richard is very passionate about the crypto community. Read his inspiring story into cryptocurrency here. I like how logically it is presented. Enter your email address to subscribe to this blog and receive new posts via email. Get free bitcoin from Coinbase. Bitcoin was created by an anonymous person or people who went by the name of Satoshi Nakamoto. And within that system there are numerous middlemen. But with Bitcoin you are actually using the software to make that transfer.
And it is direct peer-to-peer. What is Bitcoin Mining? How Are Bitcoins Created? And so now the number of the coins being released every 10 minutes is So, what determines which miner wins the block reward? How Many Bitcoins Are There?