How does Bitcoin Mining work? – Forbes Advisor

In 2021, Tesla stopped taking Bitcoin for the purchase of electric cars. Why? Concern about the environmental impact of creating new units of the world’s most famous cryptocurrency in a process called mining.

The computers that create new Bitcoin use a huge amount of electricity, often generated by fossil fuels. The real cost of electricity is one of the factors that gives real value to the digital currency, which is currently trading at around $23,600.

Regardless of the source of electricity, and the cryptocurrency mining industry moving toward renewable energy sources, mining is central to Bitcoin’s existence as a decentralized currency.

Whether you’re considering buying Bitcoin outright, mining it yourself, or investing in the companies that mine it or make mining equipment, you’ll first want to understand what Bitcoin mining is in the first place.

What is Bitcoin Mining?

Bitcoin mining refers to the process by which a global network of computers running the Bitcoin code work to ensure that transactions are legitimate and properly added to the cryptocurrency’s blockchain. Mining is also how new Bitcoin is put into circulation.

“Bitcoin mining is what makes the Bitcoin network secure,” says Stefan Ristić, owner of the educational website BitcoinMiningSoftware.com.

Powerful computers compete to be the first to validate a series of transactions called a block, and add the block to the blockchain.

Miners get transaction fees and 6.25 BTC per block for their efforts (if they solve the block correctly). That’s about $147,000 in today’s prices.

“The mining, or transaction processing, is done by incredibly expensive and powerful computers whose sole function is to run algorithms to solve the mathematical problem that allows the owner to win a Bitcoin block – and the revenue that goes with it,” says Richard Baker, CEO of miner and blockchain service provider TAAL Distributed Information Technologies.

How does Bitcoin Mining work?

Verifying Bitcoin transactions and recording them on the blockchain involves solving complex algorithms. This is all part of Bitcoin’s proof of work consensus mechanism, which aims to add a new block every 10 minutes.

The more computing power a miner has, the more likely it is to win blocks.

“They have a chance to earn Bitcoin every 10 minutes based on how much computing power they use,” says Bruce Fenton, CEO of fintech company Chainstone Labs.

The latest Bitcoin miners use application-specific integrated circuits (ASICs) specifically programmed for Bitcoin mining to handle all the computing power needed, explains Patricia Trompeter, CEO of cryptocurrency miner Sphere 3D Corp.

The current generation of these dedicated Bitcoin mining rigs generate possible answers to the Bitcoin block equations at around 100 trillion hashes per second, said Rob Chang, CEO of Gryphon Digital Mining, a privately held Bitcoin miner.

A Bitcoin Hash is a mining measure of the amount of computing power used on the network to process transactions.

How to mine Bitcoin

Since Bitcoin was released in 2009, the energy required to produce the cryptocurrency has increased as the network increases mining difficulty to keep the flow of new blocks of transactions steady even as more miners get involved.

Bitcoin mining is usually a large-scale commercial affair carried out by companies using data centers with purpose-built servers. Mining farms may have many mining computers in stock.

“The input that determines whether such activities are profitable is the cost of electricity to power the mining computers,” says David Weisberger, CEO of trading platform CoinRoutes.

Because of this, farms are often located near energy sources such as dams, oil and gas wells, solar farms or geothermal sources.

“The more network participants, the higher the difficulty,” says Jagdeep Sidhu, president of the Syscoin Foundation, which represents the Syscoin open-source blockchain project.

How to mine Bitcoin at home

High costs put home miners at a disadvantage to institutional miners, who can obtain low-cost power and save money by bulk buying Bitcoin mining rigs.

“Although there are home operators who have Bitcoin mining in their homes, the process of mining has become both expensive and regulated, marginalizing the smaller miners,” says Baker.

But that doesn’t mean it’s impossible to mine Bitcoin at home.

If you want to mine Bitcoin at home seriously, you need to buy an ASIC Bitcoin mining rig, which can easily cost more than $10,000.

“However, mining at home may not be profitable given residential electricity prices,” says Trompeter. “Additionally, ASICs are very loud and can overheat if not properly cooled.”

To explore the profitability potential, you can consult an online Bitcoin mining calculator that takes into account your electricity costs, among other things.

Even people with an ASIC miner at home tend to pool their computing power with other ASIC owners and share the Bitcoin reward based on their contribution to the pool. Even if you can successfully mine a block solo, that feat is often compared to winning the lottery.

You can also consider cloud mining, where you buy or lease hardware or rent computing power from a third party.

How long does it take to mine a Bitcoin?

Because a new block is generated roughly every 10 minutes, a new Bitcoin is minted roughly every 96 seconds, Ristić points out. But the single Bitcoin is most likely shared among many miners worldwide.

It can take a single miner a very long time to mine one Bitcoin,” said William Szamosszegi, CEO of Bitcoin mining platform Sazmining, which connects individual retail miners with existing green Bitcoin mining facilities.

Here’s the scale of a bitcoin mining company: Gryphon Digital Mining reported in April that it mined 61 Bitcoin equivalents for the month.

These results require a lot of computing power. (The company even bought more than 7,000 Bitcoin mining rigs in July 2021 for $48 million for its business.)

For this reason, with such fierce competition, most Bitcoin miners work together as part of a mining pool. As part of the pool, they combine their hash rate with improving the odds of solving a block on Bitcoin’s blockchain.