The fascination with cryptocurrencies has been built up from the hype that is Bitcoin, when its value surpassed US$18,000 in 2018 before its subsequent crash where it stayed below US$5,000 until 2020 when it started gaining traction again.
Since then, it had tested US$60,000 twice but remains a volatile investment vehicle.
Yet, more and more people are becoming interested in cryptocurrency. And since you are here, you are probably one of them too.
You may have even done your initial research about what Bitcoin is, and learnt about the concept of “bitcoin mining”. It sounds pretty amazing to be able to get Bitcoins, just by letting your computer run isn’t it?
Unfortunately like most things, there’s more to Bitcoin mining. In this article, we explore what exactly is Bitcoin mining and how does it work? If you’re thinking if you should get into bitcoin mining to get some cheap Bitcoins, you have come to the right place because we are here to tell you all about it.
Bitcoin Mining Overview
Bitcoin is a cryptocurrency and worldwide payment system that functions without a central bank or. In other words, its decentralised. There’s no bank, no government, and no organisation that somehow holds all the cards.
Unlike paper or fiat money which a government can decide to print and distribute, Bitcoins cannot be controlled by any single entity. Instead, they rely on miners who confirm transactions. Miners access a special software where they solve cryptographic puzzles. Their job is to take transactions, mark them as legitimate (validation), and then spread the information across the network.
In exchange for their work, they are issued a certain number of bitcoins. This is the reason why many try mining. Bitcoins, in turn, have become a good incentive for them.
Therefore, mining is an integral part of the Bitcoin network. It ensures fairness while, at the same time, keep the network stable, safe, and secure.
How does Bitcoin Mining Work
There are very important concepts under Bitcoin mining and you should take note of these if you want to mine soon.
Blockchain
When you mine, the transactions you confirmed would be placed in a general ledger called the ‘blockchain’. The blockchain contains all transactions made between any bitcoin addresses.
And as with the growing number of Bitcoin users and miners, there will be an increasingly lengthy list of all transactions that took place on the network.
A constantly updated blockchain is given to everyone who participates.
To keep this digital ledger trusted and secured, miners put the transactions through a process where they take the information in the block and apply a mathematical formula. They then turn it into a “hash”.
Hash
A Hash is a shorter and seemingly random sequence of letters and numbers that’s stored along with the block, at the end of the blockchain at a point in time.
While producing a hash from a collection of data is easy, working out what the data is from the hash is proven to be quite difficult. No hash is made the same.
They are all unique and if you change even just a single character in a block, the hash will completely change.
Aside from the transactions in a block which miners use to generate a hash, they also refer to previous data. One of these is the hash of the last block stored in the blockchain.
Using the hash from before confirms how one block and every block after are legitimate. So if you tamper with it, everyone would know.
Faking a transaction by changing a block that has already been stored in the blockchain would immediately be identified since the hash would completely change.
This would then create a domino effect for those previous blocks of hash since it would make the subsequent block’s hash wrong too and would continue all the way down.
Proof of Work
When Bitcoin was first introduced, miners were rewarded with 25 bitcoins for sealing off or confirming a block. The amount of bitcoins rewarded to the miner is halved as the global amount of bitcoins is progressively mined out. This process is known as ‘Bitcoin Halving” or “Halvening”, and the last halving event took place on May 11, 2020, reducing miner rewards to 6.25 BTC . The next halving event is likely to occur in March 2024.
There’s only a total of 21 million bitcoins that ever can be mined.
Once the miner has confirmed the block, the blockchain will be updated and announced to everyone on the global network.
For this reason, there are so many miners out there who are out competing against each other by using software that is written specifically to mine blocks.
And since it has become relatively easy to produce a hash from a collection of data, the network has to find a way to make the system more difficult. If not, all the bitcoins would be cashed in in less than a second.
The network does this through a protocol they call ‘proof of work’.
The proof of work is basically a method that ensures that the new block was difficult to be made. By difficult, they mean costly and time-consuming which is a combination of a costly processing power that can be translated to:
- Hardware
- Energy
- Time
Therefore, the bitcoin protocol demands that a block’s hash has to look a certain way and must have a certain number of zeroes at the start. There is no way of telling how the hash will look like before you produce it.
What You Need To Mine Bitcoins In Singapore
Now that we know how mining works, let us now discuss how to actually mine and what you need for it.
#1 Get a Bitcoin Mining Hardware
In order to mine, you need the tools for it. For mining bitcoins, that would be getting your own bitcoin mining hardware.
Before, miners can still use their own computer to hash blocks. But due to the competitive bitcoin environment, you will need to use ASIC miners which are special computers built strictly for mining Bitcoins.
#2 Get a Bitcoin Wallet
Just like your own physical wallet used to keep your paper bills and coins, you also need a bitcoin wallet to keep your Bitcoins.
With the wallet, you will have to get a wallet address, which is typically a long sequence of letters and numbers.
You will also have a public Bitcoin address aside from your private key, which works as a password for your wallet.
#3 Look for a Mining Pool
A mining pool is something like cloud mining, where you join a bunch of people already mining bitcoin and contribute hashing power to increase total output so that it is more productive than doing it by yourself. However, if you want more chances to succeed, then it helps to join a mining pool.
A mining pool is a group of Bitcoin miners that work together to make more Bitcions. What this means is more manpower.
#4 Get a Mining Program
Once you start mining, you will need to keep track of all of your transactions. You will need a mining program to run your computer so that you will be able to control and monitor your mining rig.
