Bitcoin Mining Trends for 2018
Bitcoin mining is the process that helps Bitcoin function as intended and what continues to introduce new bitcoins to digital wallets all over the world. Simply put, it is the computational process by which transactions that use bitcoin are added to the blockchain – for which those that conduct the activity are rewarded with new bitcoins. It is called mining because it is a form of prospecting and recovery, only in a digital nature vs. a physical one. The process of mining bitcoins is made harder by deliberate increases in difficulty as more and more miners attempt to create the next block of transactions in the chain. The first miner to create the proof of work for a block is rewarded with both the transaction fees for confirmed transactions and new bitcoin. Currently, miners receive 12.5 bitcoins per block – and that rate is halved every 210,000 blocks.
Bitcoin miners use specialized hardware today, but Bitcoin was designed so that anyone could take part in the mining process. The increased sophistication of hardware now requires significant investment by miners, in addition to the need for electricity. The more miners and hardware that join the network, the higher the difficulty rate becomes. If mining power is reduced, so does the difficulty in order to keep the generation of each new block to roughly 10 minutes. It is that 10-minute time frame that keeps the number of Bitcoins generated at a slow and steady pace.
In the beginning, miner hardware was not needed as bitcoins could be mined using personal computers and one could easily become wealthy. Using personal computers became inefficient due to energy consumption and the utility bills incurred. When ASIC bitcoin miners became more readily available and affordable, they became the logical choice for mining bitcoin. Mining can generate a decent income, with the top mining hardware capable of generating approximately 0.3603 BTC monthly and a cost of $2,000 to $2,700 depending on whether it is new or used. It is estimated that about 10 months of mining is required to break even considering the original investment of hardware, and the electricity costs. Additionally, a power supply unit is required because a bitcoin miner cannot just be plugged into the wall. Click here for a complete list of mining hardware recommendations and reviews.
There are three factors which are considered when determining the profitability of mining: the cost of hardware, electricity, and other overhead such as cooling the facilities. It is estimated that the break-even cost of mining a bitcoin currently is about $8,000. When it is not profitable to mine, some miners in certain locations simply turn off the machines until the price rises. Miners in China can access very cheap electricity produced by hydropower, so miners in other areas of the world need to obtain power at 4 cents or less per kilowatt hour to compete. Chinese miners have more incentive to produce bitcoin in spite of the cost as it permits them to send money overseas and evade their government’s capital constraints.
FAQs about Bitcoin Mining
Bitcoin Protocol Limits
Cryptocurrency protocol limits Bitcoin to 21 million coins and the incentive for adding a block is halved every 210,000 blocks (about every 4 years). Eventually, the reward of newly created bitcoin will diminish to zero – somewhere in the year 2140 – and transaction fees will be the only reward for processing transactions to the blockchain. Now 9 years in existence, the network generates approximately 12 BTC every 10 minutes. Mining will cease to exist when the final bitcoin in a total of 21 million is mined.
In most countries, bitcoin mining is legal as long as resources such as electricity and processing power belong to the miner. There are some countries where bitcoin mining, as well as possession and use of bitcoin, is illegal. It is legal in North America and most of Western Europe where local regulatory frameworks actually provide certain protections and basic oversight.
Does Mining Counterfeit Bitcoin?
Many falsely believe that bitcoin mining is like counterfeiting currency – this is not true as it is not possible to counterfeit bitcoin, in the first place. Secondly, mining bitcoin does not create duplicates or fake bitcoins. It is a process for which miners are rewarded with newly created bitcoins as a result of the activity.
Proof of Work
Proof of work is a consensus algorithm in the Blockchain network used to confirm transactions and produce new blocks to the chain. Bitcoin is a proof-of-work cryptocurrency that is based on the Hashcash POW. What this basically means is that “proof of work” is a piece of data that is costly, time-consuming and hard to produce, yet easily verified by others in order to satisfy certain requirements. A lot of trial and error is required before a valid proof of work is generated, and the winning miner is based on first to provide.
Mining a bitcoin block is difficult due to the fact that 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.
To simplify: The hash of a block must start with a certain number of zeros. The probability of calculating a hash that starts with many zeros is very low, therefore multiple attempts must be made. In order to generate a new hash each round, a nonce is incremented.
The Bitcoin mining network difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 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 push 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. Currently this bounty is 12.5 bitcoins; this value is halved every 210,000 blocks.
Additionally, the miner is awarded the fees for sending transactions that are paid by senders. The fee is an incentive for the miner to include the transaction in their block. In the future, as the number of new bitcoins awarded dwindles, the fees will make up a greater percentage of mining income.