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What Is BTC Mining

17:47 04/01/2018

Once a person gets into the world of cryptocurrencies and see what opportunities it may bring, a quite reasonable question arise — how to get bitcoins? There are three ways to obtain them:

 

  • Buy
  • Exchange
  • Mine

 

The first two options are intuitively understandable but the third one might seem strange. How can bitcoins be mined?

 

What is mining?

 

In order to explain the meaning of the word “mining”, we should take a closer look at blockchain technology itself. Blockchain is a kind of so-called public ledgers that contains information about all performed transactions, including the amount of transferred BTC and wallet addresses. Every network participant can get a copy of the whole blockchain and see all required data.

 

The blockchain structure is clearly explained by its name. Once a new block is discovered, it joins the whole chain and gets connected with other blocks. Mining is the very process of adding new blocks to the chain.

 

One of methods used in mining is hashing. Block data is taken and processed within a sequence of digital operations. Regardless of the input string, output will always be of the same size. Hashing is aimed to prevent adding false data into blocks. Not only does it use new transactions but also data on previous blocks. This process of hashing is simple, however it cannot be reversed and recorded in a wrong way. Moreover, even two close data sets will give an absolutely different hash result.

 

Miners don’t mine blocks for nothing. Since hashing requires a lot of computational resources and the validity of blocks must be checked all the time, every successful miner gets a reward. Only one miner is rewarded for finding one block, while the whole number of people engaged in the process is irrelevant.

 

So far, the block reward is 12.5 BTC. This number will be halved after the next 210,000 blocks are closed.

 

The total amount of bitcoins is limited - this is one of the rules described in the Bitcoin protocol. It might seem quite logical to mine as much bitcoins as possible. However, it is impossible because of another restriction called Bitcoin difficulty, a periodically adjusted measure used to show how difficult is it to find a hash below a given target.

 

Mining uses a so-called consensus protocol called Proof-of-Work. According to its features, an average time of finding a single block is once per 10 minutes. Every 2016 closed blocks the average time is checked, and if it varies a lot, the difficulty changes. The difficulty may be changed in both ways, but in fact its level becomes higher.

 

Every cryptocurrency has its own difficulty and its own Proof-of-Work implementation. It depends on the number of users and the amount of hashing power. Such an approach restricts malicious behavior of some participants. Checking the block is very simple compared to mining. If the block is not valid it means that a miner has wasted their time and power. That is the reason why mining is called this way. The whole process is really complex and requires a lot of luck and efforts.

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