Bitcoin mining is one of the most profitable and important economic activities linked to the Bitcoin (BTC) network. The answer to “how does Bitcoin mining work?” is not an easy one. However, we will try answering it in this post.
Before we start, we need to know some basic concepts of Bitcoin (BTC) and cryptocurrencies. This would allow us to give a complete and clear answer to how does Bitcoin mining work?
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What is Proof-of-Work (PoW)?
The first thing we need to know is that Bitcoin is a proof-of-work (PoW) digital asset. That means that in order for the network to process transactions a group of miners has to provide hashing power to confirm these transfers and add them to new blocks. The power is provided by ASIC machines (mostly). These are supercomputers that consume a lot of energy and keep the network secure.
The PoW consensus algorithm is one of the most popular in the crypto industry. However, other digital assets work with Proof-of-Stake (PoS) or delegated Proof-of-Stake (dPoS), among others. Proof of Stake does not require miners but stakers. Moreover, the energy consumption of PoS networks is minimum compared to PoW digital assets.
What is Bitcoin Mining?
Bitcoin mining an economic activity in which participants called miners process and confirm the transactions on the Bitcoin network. When a person sends a transaction, it waits to be added to a new block.
The Bitcoin network confirms blocks every 10 minutes. Each of the blocks is able to contain 1 MB of data in transactions. In order for these transactions to be confirmed, miners have to process very difficult calculus in order to find a block.
These calculations must be performed using ASIC miners. These ASIC miners use Bitcoin mining software that allows them to keep the network secure and process all the necessary transactions of the network.
How Does Bitcoin Mining Work?
As we mentioned before, Bitcoin mining works through a group of miners that need to use ASIC computers to process the transactions that are waiting in the mempool. Miners prioritize the transactions that have the largest fees.
When the network is congested, fees become higher. Individuals are able to pay higher fees. Thus, those users that pay the standard fee would see their transaction take longer to be processed by the miners.
Miners then earn a reward every time they find a block. They receive the fees paid by users when they process a transaction and they also receive the block rewards. Currently, the block reward is 6.25 BTC. Every four years, the block rewards get halved. In 2024, Bitcoin rewards would drop to 3.125 BTC per block.
How to Start Bitcoin Mining?
If you want to start mining Bitcoin, the first thing you will need is a Bitcoin mining calculator. Why? Simply because this would help you understand whether it is profitable or not to mine BTC.
You should buy Bitcoin mining rigs and ASIC machines. These can cost several thousands of dollars and be shipped to you in several months. Thus, for small and individual miners, it might not be convenient to start Bitcoin mining.
How Long Does it Take to Mine 1 Bitcoin?
To mine 1 Bitcoin, miners require just ten minutes. However, only the transactions with the highest fees will be processed during this period of time. From May 2020 and until 2024, miners will receive 6.25 BTC per block.
This is because the new issuance of bitcoin gets reduced every four years. The crypto market considers halving events one of the key parts of the Bitcoin ecosystem.
Is Bitcoin Mining Worth it?
It depends. Bitcoin miners work in cold regions of the world with low energy prices and with few political conflicts. Some of these regions include a few provinces of China, some oblasts in Russia, a few regions in Canada and Iceland.
Although these are the places where Bitcoin mining is worth it, the scale at which you mine Bitcoin is also important. There are several costs that should be taken into consideration. Individual Bitcoin miners are usually not profitable. However, it is always possible to use a Bitcoin mining calculator to understand your profitability level.
