Bitcoin Mining

Bitcoin mining is one of the most essential processes in the Bitcoin network. Anyone with a powerful computer can join Bitcoin network for mining. This process of mining is responsible for four very important functions in the system.

1) It is a system of verifying every transaction on the network.

2) Creates new bitcoin by investing computer and electric power.

3) Incentivizes nodes in the network.

4) It constantly updates the blockchain.

Mining bitcoin utilizes computer processing power to verify transactions, these transactions are added into a block almost every ten minutes and permanently added to the blockchain. Reward for mining a single block is 12 new Bitcoins. Every miner on the network competes for this reward, but once a block is mined it is distributed to every node in the network and nodes immediately move on to the next block. Besides block reward, miners also take a small amount of transaction fee. Profit in Bitcoin mining depends on multiple factors, for example, price of electricity is a very important aspect. Miners in China are able to make more profit due to cheaper electricity there. Other factors are hash rate of the computers and the number of computers dedicated to mining.

As the total amount of Bitcoin is capped at almost 21 million Bitcoins, the system of mining is configured in a way so as to steadily increase the difficulty with the increased number of miners. The reward for mining a single block is also designed to reduce over time. In the earlier days, Bitcoin was mined easily with personal computers and the reward for a single block was 50 bitcocins, later difficulty increased and GPUs were used, next came ASICs (Application Specific Integrated Circuits) specifically designed computer systems to mine bitcoins, now mining difficulty has raised to a level where it is becoming less profitable to mine even with ASICs.

AltCoin on the other hand can still be mined using specially designed GPU rigs. Mining Ethereum and other altcoin has gained a lot popularity these days.

Bitcoin Mining Infographic