Since their debut, cryptocurrencies have already seen many rises and falls. However, the increasing popularity of digital payments makes them a medium of exchange and investment tool. There are even crypto casinos like Avalon78 and this weblink which accept crypto payments! “Digging up” of new Bitcoins, or Bitcoin mining is a complicated process that simultaneously mints new digital coins and ensures the security of transactions on the blockchain. Bitcoin miners use specialized powerful software to solve hash puzzles and include new blocks of validated transactions to the blockchain.
The first miner who solves the hash function is the only miner who gets the privilege of adding a new block to the blockchain and wins the new bitcoins. If you choose to mine Bitcoins or invest in Bitcoin, knowing crypto vocabulary can be beneficial to you. Learn more about some of the important aspects of Bitcoin mining in this article.
Proof-of-Work (PoW) Consensus Mechanism
PoW mechanism is a cryptographic hash function. This puzzle is about adjusting a 32-bit arbitrary random number, the nonce value of the block. In the end, the hash of the block has to be smaller than the target hash in the network or of the same length. PoW mechanism is a blockchain security measure: it proves the compliance of validator mode and validity of the nonce number.
This complicated term is the “official name” of the random one-way mathematical hash function we’ve described before. Whatever the input string is, this hash function always returns a certain value, a fixed 256-bit output. The output can’t be altered or changed.
To solve the cryptographic hash puzzle mining hardware has to perform hash operations and generate nonce numbers. The number of hash operations performed by a miner in a given amount of time (per second!) is called the hashrate. For example, the hashrate of the device may be 20 MHz or 20 million hash operations per second. Top-notch mining devices can perform billions of hash operations per second.
The higher this parameter, the more powerful mining hardware. To roughly estimate the hashrate of a miner it is possible to use the following formula: P = X/Y. X in this formula stands for the estimated hashrate, Y for the total hashrate of all miners in the network. P stands for the probability of solving the crypto block by the miner.
Miners can use the mining software independently or join the Bitcoin mining pool. It is a cooperative setup for different independent miners that allows them to increase their hashrate. How does it exactly work? For example, person A who wants to mine Bitcoins pays a membership fee and becomes a member of the Bitcoin mining pool. Now he can mine Bitcoins at a higher speed, but if he finds a valid block, he doesn’t get a reward (Bitcoins and transaction fees) all by himself but splits the reward with the rest of the mining pool. The hashrate in the mining pool is high due to the computational resources of all the members.
A mining farm is usually much bigger than a mining pool. It is an industrial-scale warehouse with hundreds or thousands of powerful miners. In other words, Bitcoin farming is industrial Bitcoin mining. The overall computing power and hashrate of a mining farm are incredibly high, but so are the costs of setting up a Bitcoin mining farm. One of the biggest mining farms around the world is located in China.
Anyone who is looking into mining Bitcoins or investing in mining operations should be well-informed about blockchain technology and ways of Bitcoin mining. The five concepts described above are only the core of Bitcoin mining, and understanding them is a must for all miners, Bitcoin investors, and crypto enthusiasts.