- The key role played by the miners to create the new bitcoin.
- The strong security for transactions by decentralization in cryptocurrency involving bitcoin.
- The legality of bitcoin all over the World. It’s not in India.
- The equipment needed for bitcoin mining is very high and expensive.
- The pooling of Miners for solving complex blocks.
- The mechanism of maintaining the demand for bitcoin by limiting the maximum number of bitcoin created to 21,000,000.
- The major con in the bitcoin mining will be the heavy technology involved.
- The blockchain mathematical code is called “Hash”.
- The mathematical code used in the blockchain is “SHA-256”.
Dealt in a simple and elegant way, Bitcoin mining is a bitcoin generation mechanism. Together with blockchain, it maintains a safe ledger of transactions. It plays a crucial part in “bitcoin transactions” involving crypto-currency. This line has a deeper sense of literal meaning.
It keeps transactions secure, arrests the fraudulent transactions and stops the hoarding of bitcoin. These are very important because there is no government or bank to validate and secure the transaction. Instead, these are done by people called “miners” who validate our transactions and mine the encrypted mathematical block involving our transactions to generate more bitcoin. And, yes, this is how the bitcoin are generated in the first place.
What is Bitcoin mining and how is it done?
Unlike digital transactions using third party authorization, bitcoin transactions don’t have a government or bank to authorize the payment. The algorithm of bitcoin transactions is written in such a way that, these processes are done transparently, securely, publicly while arresting frauds.
The ledger of these transactions is called “blockchain”. It stores all the information about a transaction like a date and time, the sender and receiver’s unique identification keys, number of bitcoin involved in the transaction. However, any personal information about the people in a transaction like a name, etc; is not made public. Every block in block-chain can store information of multiple transactions up to the size of 1MB. So, more information can be stored with encryption at minimal space.
The group of computers which are connected to blockchain are called “nodes”. Mining is done through these nodes. Information stored regarding transactions is made public. Once these miners validate these transactions, the algorithm itself creates a block of mathematical code and attaches these blocks with the block-chain. Every node once connected, receives a copy of the blockchain. This copy is updated constantly to all the nodes connected so that hacking is arrested. Even consecutive transactions between the same people is considered as different transaction and secured in blocks.
Once miners solve this mathematical code, they receive a few bitcoin as a reward. This is how the new bitcoins are generated-unlike traditional printing of currency.
How to mine bitcoin?
The mathematical code which is used for creating the block and blockchain is “SHA-256”.
It is really a complex mathematical model to solve. It requires very highly powerful computers and superfast internet connections. All of these consume a lot of power and generate a lot of heat issues. So, to mine the bitcoins a lot of set up and power along with the technology is needed.
The mining is basically done using ASIC which means “Application Specific Integrated Circuit”. It is basically an integrated circuit which is customized for the bitcoin mining.
The price at which the ASIC circuit and the equipment required to mine the bitcoin is very high. Adding to that, the complexity involved in the mathematical block makes it very difficult for an individual miner to solve the code. So, usually, a group of minors combine has a pool to solve this mathematical code. The bitcoin they receive as the reward will be shared among themselves.
The larger the transaction, the complex the block gets. For transactions involving a smaller number of bitcoin, validation can be done by one miner itself. But, for larger transactions, multiple miners need to validate to keep it secure. Moreover, each block can store transaction information of up to 1MB. So, more transactions can be encrypted at less storage.
The more the mining is done the more transactions and the new bitcoin creation will happen. In the entire world, only 21 million bitcoin can be mined and created. Right now, approximately 19,000,000 bitcoin have been mined by the miners all over the world for a decade- since the birth of the bitcoin.
Since the bitcoin transactions and mining have been started, on average, for every 4 years, the number of bitcoin left to be mined has been halving. Starting at 21 million to be mined in 2008, it reached 10.5 million in 3 years. Halving down for every 4 years in the next 8 years, it reached 2.7 million left approximately.
Also read Why to Invest in Bitcoin
Bitcoin mining In India
Bitcoin mining is not made legal in India yet. So, mining may cause legal issues for miners from India. The present government laws pertaining to digital currency don’t support crypto-currency and bitcoin.
While most European, American, Asian countries, Australia have legalized it, few Asian and European countries have banned it completely. It poses a legal threat to miners from those nations.
Pros of Bitcoin Mining
- It creates new bitcoin.
- Bitcoin mining is Legal in India
- Information regarding the transactions will be saved securely without any information about the people involved in the transaction.
- More technological advancements can happen with the demand to solve the most complex blocks.
- Involving more miners into the mining will make a more secure network of cryptocurrency transactions.
- Solving the blocks in the blockchain will create a more circulation of bitcoin because the rewards and by the miners need to be circulated for its validation.
- This can create a decentralized monetary system for the entire world.
- International transactions will become more secure and easy.
- Secret keys representing the sender and receiver secure the transactions.
- A bitcoin can carry information about any property or asset. It can be money, shares etc.
- The basic algorithm of mining protects the transaction and arrests hackers to divert the funds.
- It can handle the large number of transactions with the decentralization and nodes being spread all over the world.
Cons of Bitcoin Mining
- Equipment required to mine the blocks is too expensive. ( Machine cost is 1500$ to 2500$ including Tax)
- The larger the transaction becomes the complex the block gets.
- It is not legally approved in few countries.
- Needs Some technical knowledge, not everyone can mine.
- Mining takes a lot of effort and time, during which the power, energy required for miner machine involved need to be supplied.
- It’s not affordable to run miners in areas with high electricity costs.
- It can take months to years to solve a block.( 1 block contain 6.5 Bitcoin)
- When all 21 million bitcoins are mined, there won’t be a block reward to pay to miners. When a Bitcoin user sends a BTC transaction, a small fee is attached. These fees go to miners and this is what will be used to pay miners instead of the block reward.
Bitmain is providing mining machines to miners, you can get more details about mining machines by going to bitmain shop