Bitcoin Mining Essay

Bitcoin mining essay

Bitcoin Mining: What is and how works?

Bitcoin mining sounds like gold mining at the beginning. In the self-organized network, transactions are processed 24 hours a day, which combine in a block. Miners confirm these transactions and enter them digitally into a block. For this they receive bitcoins. But, Bitcoin digital generation based on algorithms is an investment that is worth in software, costs, time and mining effort of Bitcoin?

How does the Bitcoin network work?

The Bitcoin Network is a decentralized peer network, comparable to a huge global data center. This is where all transactions take place and each Bitcoin unit is stored in the form of a chain of digits and characters, the so -called block. A block is in turn part of a block chain, the block chain. Users have an anonymous account within the network and each Bitcoin unit has an anonymous transaction history, which also consists of digits and characters. This makes Bitcoins to the proof of falsifications.

If the bitcoins are generated again, the generated units are immediately added to the decentralized network and saved. A bitcoin cannot be extracted twice from algorithms by chance. Each Bitcoin mining algorithm only exists once.

Due to the limitation of a maximum of 21 million Bitcoin units, which according to the current state will not be completely extracted before 2021, inflation is excluded unlike real currencies. This means that inflation cannot make Bitcoin more useless and reduce purchasing power.

The price is only determined by supply and demand. There are no economic or political influences on the value of cryptocurrencies, so digital money is also independent of interest rates, economic developments or political changes, etc.

Bitcoin Network Benefits

• Free transfers in Bitcoin worldwide
• Total anonymity
• User identification only through a number and character chain
• No user lock or censorship
• Price earnings are possible through speculation when buying and selling in encryption exchanges
• Protection against falsifications through the documentation of the transaction history of each Bitcoin currency
• Inflation proof by limiting the maximum amount of bitcoins that can be generated

How are bitcoins created?

All transactions are processed, monitored, administered and recorded in the system through the decentralized network. If a transaction is made, it is noted in a block. These processes are continuously synchronized. The block only consists of a sequence of digits and characters, the so -called hash. Each hash exists only once throughout the system.

The miner confirms the hash in the block and the block is added to the blockchain, a block chain. For this confirmation, the miner receives a payment in Bitcoin, that is, a proportional amount of transaction costs. Credit is made in the user’s wallet. However, you cannot simply select this confirmation, your computer or the hardware miner with the associated configured software must first solve an algorithmic task in the system to be "approved" for this.

Network Manipulations Proof Blocks

In practice, the miner extracts bitcoins when a transaction block goes through a network process. A mathematical formula is used in the form of algorithm that generates a hash from chains of digits and characters.

Each hash of this block uses the hash of the previous block, which was added to the block chain. The new transaction block thus has a kind of approval stamp that both the previous and the new block are valid. An additional advantage: this also makes the block to manipulations proof.

Extract Bitcoin yourself

To extract bitcoin yourself, you need additional hardware in addition to a wallet. With a normal computer and a good graphics card, mining is no longer possible 24 hours a day due to high calculation power and electricity costs.

Miners connect by means of a LAN cable, users configure it through the browser. No more bitcoin mining software for this solution is required. Energy is supplied through an energy package. Hardware miners for domestic use are available from around EUR 1,000 to more than EUR 2,000.

They are approximately half the size of a PC computer (desktop). To this are added nothing despicable costs of electricity, since hardware can only work properly if it is in operation 24 hours a day.

In addition to its own acquisition and electricity costs, you must also join a paid mining group. This is an association of miners that collectively provide their computing power and are paid proportionally from transaction costs after confirming a hash.

Compared to costs, the profits are low, because the payment is not made in complete bitcoin units such as 1 BTC, but proportionally. In addition, it is often necessary to reach minimum amounts to pay. Since a bitcoin has eight decimal places, the amounts achieved are only a fraction of a bitcoin in the range of the last decimal places.

Cloud mining: Rent miners and third -party software

With mining in the cloud, hardware and mining software they are rented to a third party for a rate and are used online. If you decide in favor of cloud mining, you must carefully choose the supplier because, as unfortunately almost everywhere, doubtful companies are also represented in the market.

In most cases, it is suspected that black sheep do not have their own hardware and that the distribution is only made with the current rental income. Of course, these scams can only work until the bubble explodes and expenses exceed income.

Prices also differ significantly in cloud mining. In the case of accredited suppliers, rates are relatively high and maintenance surcharges can also be charged, since hardware and software provided naturally generate continuous costs. Therefore, read the terms and conditions and the user agreement with attention and be careful with the hidden costs.

What does difficulty mean?

In the mining calculator you will find the term difficulty. The difficulty describes the difficulty in calculating new bitcoins. It occurs with a factor. The factor can be used to calculate how much more or less bitcoins can be calculated with the same calculation power. The more mining and miners there are, the greater the difficulty.

Since cryptocurrencies are generally very volatile in their price behavior and show strong fluctuations, unfortunately it is always difficult to predict the future evolution of prices.

Conclusion on Bitcoin mining

Cryptocurrency mining is strictly speaking, a competition between competitors for the following block. Those who provide high calculation power in the mining group are proportionally more money than the miner with less calculation capacity.