By now, everyone has heard of Bitcoin, the cryptocurrency that has taken the world by storm. When it was first created in 2009, Bitcoin was something no one was talking about, and only the few who frequented niche internet forums knew about it.
Now, Bitcoin is a global phenomenon and has been a source of many success stories. Cryptocurrency is more accessible than ever and continues to attract all types of newcomers looking to get involved with blockchain technology.
But understanding what Bitcoin is, how blockchain technology works, and the fundamentals of bitcoin mining is still a subject for the technologically inclined.
Luckily, getting a grasp of the basics isn’t too complex and simply requires learning some terms associated with blockchain tech.
This brief guide will explain several bitcoin mining fundamentals and what you should know before starting your cryptocurrency journey.
What You Need to Know First
For anyone familiar with cryptocurrency, terms like bitcoin and blockchain are standard. But for someone new to the field, understanding Bitcoin and blockchain technology is an integral first step to mining.
What Is Bitcoin?
Bitcoin is the first of its kind in that it is the first ever decentralized digital currency. This means that bitcoin can be traded peer-to-peer with no intermediaries such as governments, banks, brokers, etc.
Like other currencies, bitcoin can be used to make purchases and traded for goods. It can be transferred faster than traditional currencies and is more secure because Bitcoin transactions can not be counterfeited. Most use bitcoin as a means of investment.
Bitcoin is obtained by either trading, purchasing, or can be mined.
What Is Blockchain?
Blockchain is the underlying technology that makes the Bitcoin network possible. The blockchain is a publicly distributed ledger that records transactions in chronological order. Because users can not modify the ledger, transactions are safe from the threat of hacking or falsification — this is possible through cryptography and complex techniques.
Blockchains are composed of blocks, which are data structures within the blockchain database. Blocks are the smallest unit within a blockchain and have four principle traits:
- Previous hash: This trait keeps blocks linked to one another — the previous hash is the value of the hash of the preceding block of the chain.
- Data: The data within a block is the collected set of transactions.
- Nonce: Every block uses a hash, and the nonce is a random value that varies the hashes value output. The nonce is also related to the concept of “proof of work,” which is used to verify transactions within the blockchain.
- Hash: In the last part of the process, the hash is the value obtained by passing the previous principles through the SHA-256 algorithm, a necessary cryptographic algorithm. This final step is more or less a digital signature for a block.
The Basics of Bitcoin Mining
Obtaining Bitcoin and other cryptocurrencies is possible through trading and mining. Where many people are familiar with trading cryptocurrencies and using them as investment instruments, not as many people are familiar with the process of mining bitcoin.
What Is Bitcoin Mining?
There are a finite number of bitcoins; you must mine blocks to bring new bitcoins into circulation. Mining is done by solving complex cryptographic puzzles. Essentially, by using mining software, users discover and then mine blocks to generate cryptocurrency.
There is a misconception about computational puzzles because people think of solving intense math equations. However, the process is more of a lottery, where many miners compete to discover a block’s random hash value. It’s more or less guesswork, but faster machines may be more effective at solving puzzles more quickly.
Mining is an integral part of the Bitcoin network, as it brings additional currency into circulation and validates transactions for the blockchain ledgers — when one block is mined, the puzzle-solving process starts over again.
By proving the legitimacy of bitcoin transactions, miners are rewarded with cryptocurrency. Mining helps keep transactions truthful and fair, as the ledgers provide data for a transaction each step of the way.
What Do You Need to Mine Bitcoin?
Mining can be a long and involved process when you’re first learning and requires powerful equipment. An average computer may not be capable of mining, as the current requirements to mine bitcoin demand a powerful graphics processing unit (GPU).
If someone is not using a GPU, they need an application-specific integrated circuit (ASIC), which people commonly use exclusively for mining. The hardware necessary for practical mining can be expensive, but because of how competitive mining has become, it is all the more essential.
A lot of energy consumption is involved in bitcoin mining, so it is crucial to understand how much electricity you consume.
Key Takeaways on Bitcoin Mining
Bitcoin mining is an exciting part of the cryptocurrency universe but isn’t as simple as trading and requires more material to get started. While it allows you to obtain cryptocurrency without spending money through trades and investments, it does require research and money for powerful equipment.
Miners play an integral role in generating new bitcoin and verifying transaction authenticity, so their role in the Bitcoin network is treasured. Luckily, there are more resources than ever to learn about blockchain technology, so diving in just takes the proper dedication and sound research.
