When you think about mining, what comes to mind? I can imagine heavily sweating men wearing yellow helmets with headlamps and sparse clothing, their faces, and bodies covered in thick soot as they pick at walls with heavy tools.
Mining is a gruelling process that usually involves drilling the soil or breaking cave walls and blowing up mountains to find precious natural resources.
On the blockchain, mining serves the same purpose as physical mining. In physical mining, the miner harnesses existing structures (mountains, caves, and valleys) to find rare and valuable minerals. On the blockchain, the miner harnesses the chain to access more of its cryptocurrencies.
Mining is the process through which new transactions are added to the blockchain, resulting in the creation of new coins.
The blockchain mining process involves a large decentralised network of computers with extremely high processing power. These computers are called nodes, and they help verify transactions on the blockchain.
The verification creates new blocks on the blockchain, and the miners get new coins as a reward for using their high computational power to help the blockchain.
How does mining work?
This article focuses on mining in the most popular blockchain, the Bitcoin blockchain.
Generally, cryptocurrencies can be obtained in three distinct ways: they can be bought from centralised and decentralised exchanges, received as payment or a gift, and mined from the blockchain.
The process of mining (verifying a blockchain transaction) entails the solving of complex mathematical equations. The equations are thrown randomly to the miners and whoever solves it first gets to verify the transaction and get the coin reward.
Every computer on the network struggles to be the first to solve the complex problem and reveal a 64-digit hexadecimal number known as a “hash.” The faster a computer calculates and makes informed guesses, the more likely it will earn the reward.
The winner of the exercise updates the blockchain with all the newly verified transactions, thereby adding a new block to the entire blockchain. Once this is done successfully, the miner gets the Bitcoin reward. This process repeats itself every ten minutes on average.
How much do miners earn?
When miners create a new block, they get rewarded in coins. These coins can then be exchanged for money. In 2020, the reward for successfully mining a new block was 6.25 BTC.
This figure will be slashed by half in 2024 and every four years after, according to the Bitcoin whitepaper. This process is called halving.
The rewards from mining were 50 BTC in 2009, 25 in 2012, and 12.5 in 2016, to the current 6.25 BTC from 2020. The last Bitcoin halving event took place on May 11, 2020.
By September 2021, 18.828 million of the 21 million Bitcoin cap had been mined and released into circulation, accounting for roughly 89.7% of all the Bitcoin to be mined.
Bitcoin has a limited supply of 21 million coins. According to expert calculations, this means that the final block in the Bitcoin blockchain will be mined in 2041.
What do you need to start mining?
In 2010, before Bitcoin became popular, you could mine crypto by solving the equations with your home computer. Unfortunately, as the blockchain has grown over the years, so has the amount of power needed to mine it.
According to Coinbase, it now requires 12 trillion times more computing power to mine one bitcoin than it did when the first blocks were mined in January 2009.
Consequently, Bitcoin mining has become a very structured operation that involves a lot of high-grade computers in a controlled environment. Organisations buy the devices (mining equipment) and pay the high electricity costs required to always keep them online.
Devices needed for mining
Some of the tools needed by a Bitcoin miner include:
- Mining hardware like GPU (graphics processing unit), SSD (Solid State Drive), or ASIC (application-specific integrated circuit).
- Mining software like BeMine and Kryptex Miner.
- A crypto wallet.
Once all of these are set up, the mining process is automatic, and it continues as long as the computer is powered.
Why is mining important?
Mining helps to build and maintain the blockchain. It powers the decentralisation of the blockchain as the verifications are done by people worldwide. There’s no need for a central party.
Mining is also the only way to create new cryptocurrencies. Think of it like printing money. Without miners, the amount of cryptocurrency getting into the system would be very small.
Mining is an intensive process that requires a lot of computer power and electricity. Sometimes, different individual miners come together on the same network and collaborate to increase their chances of mining a block.
Mining pools are usually open to the public. Anyone interested can add their computer to the network.
Mining and energy
Mining consumes a lot of electrical energy. The amount of electricity needed to run a mining firm has raised eyebrows across different countries.
Due to the high consumption, many firms are located in Asia and parts of Europe where the energy fees are lower than first world countries like the US and UK.