Mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin knots use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.
Mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains stable. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin knots each time they receive a block. Bitcoin uses the hashcash proof-of-work function.
The primary purpose of mining is to permit Bitcoin knots to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a “subsidy” of freshly created coins. This both serves the purpose of disseminating fresh coins in a decentralized manner as well as motivating people to provide security for the system.
Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it leisurely makes fresh currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.
The Computationally-Difficult Problem
Mining a block is difficult because the SHA-256 hash of a block’s header must be lower than or equal to the target in order for the block to be accepted by the network. This problem can be simplified for explanation purposes: The hash of a block must commence with a certain number of zeros. The probability of calculating a hash that starts with many zeros is very low, therefore many attempts must be made. In order to generate a fresh hash each round, a nonce is incremented. See Proof of work for more information.
The Difficulty Metric
The difficulty is the measure of how difficult it is to find a fresh block compared to the easiest it can ever be. It is recalculated every two thousand sixteen blocks to a value such that the previous two thousand sixteen blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. This will yield, on average, one block every ten minutes. As more miners join, the rate of block creation will go up. As the rate of block generation goes up, the difficulty rises to compensate which will thrust the rate of block creation back down. Any blocks released by malicious miners that do not meet the required difficulty target will simply be rejected by everyone on the network and thus will be worthless.
When a block is discovered, the discoverer may award themselves a certain number of bitcoins, which is agreed-upon by everyone in the network. Presently this bounty is 12.Five bitcoins; this value will halve every 210,000 blocks. See Managed Currency Supply.
Additionally, the miner is awarded the fees paid by users sending transactions. The fee is an incentive for the miner to include the transaction in their block. In the future, as the number of fresh bitcoins miners are permitted to create in each block dwindles, the fees will make up a much more significant percentage of mining income.
The mining ecosystem
Users have used various types of hardware over time to mine blocks. Hardware specifications and spectacle statistics are detailed on the Mining Hardware Comparison page.
Early Bitcoin client versions permitted users to use their CPUs to mine. The advent of GPU mining made CPU mining financially unwise as the hashrate of the network grew to such a degree that the amount of bitcoins produced by CPU mining became lower than the cost of power to operate a CPU. The option was therefore eliminated from the core Bitcoin client’s user interface.
GPU Mining is drastically swifter and more efficient than CPU mining. See the main article: Why a GPU mines swifter than a CPU. A diversity of popular mining equipments have been documented.
FPGA mining is a very efficient and rapid way to mine, comparable to GPU mining and drastically outperforming CPU mining. FPGAs typically consume very petite amounts of power with relatively high hash ratings, making them more viable and efficient than GPU mining. See Mining Hardware Comparison for FPGA hardware specifications and statistics.
An application-specific integrated circuit, or ASIC, is a microchip designed and manufactured for a very specific purpose. ASICs designed for Bitcoin mining were very first released in 2013. For the amount of power they consume, they are vastly quicker than all previous technologies and already have made GPU mining financially unwise in some countries and setups.
Mining services (Cloud mining)
Mining contractors provide mining services with spectacle specified by contract, often referred to as a “Mining Contract”. They may, for example, rent out a specific level of mining capacity for a set price for a specific duration.
As more and more miners competed for the limited supply of blocks, individuals found that they were working for months without finding a block and receiving any prize for their mining efforts. This made mining something of a gamble. To address the variance in their income miners embarked organizing themselves into pools so that they could share prizes more evenly. See Pooled mining and Comparison of mining pools.
Bitcoin’s public ledger (the ‘block chain’) was commenced on January 3rd, two thousand nine at Legal:15 UTC presumably by Satoshi Nakamoto. The very first block is known as the genesis block. The very first transaction recorded in the very first block was a single transaction paying the prize of fifty fresh bitcoins to its creator.