Bitcoin Mining: A Beginner’s Guide
Breaking it down: What is mining and why do miners matter? Does Bitcoin mining harm the environment? What is a hash rate and why does it matter? How to mine Bitcoin in 2023?
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Understanding mining starts with a basic grasp of blockchain.
Blockchain is a digital ledger recording transactions, maintained across a network of nodes, each holding a unique copy. Users of the blockchain can view past transactions and add new data to the network. To simplify processing, transactions are organized into blocks, which are then interlinked in a chain.
These blocks are secured with cryptography, ensuring their contents are unalterable. This feature establishes a decentralized transaction ledger, free from any central regulatory body.
Blockchain Working Scheme. Source: authentrend
For an even more straightforward explanation, see our article “How to explain blockchain technology to your kid.”
What is Bitcoin Mining and Who are Miners?
Mining is the process of verifying transactions between users and adding them to the blockchain's public ledger. Mining serves two main purposes:
- It upholds the blockchain's emission policy by adding new coins to the existing circulating supply.
- It ensures the blockchain's integrity, safeguarding it against external threats and unauthorized transactions.
To perform mining, participants deploy fully operational network nodes and engage in solving intricate cryptographic problems with their hardware. For their efforts, they are rewarded in the digital currency of the blockchain they are maintaining. These individuals are referred to as miners.
Essentially, mining is akin to safeguarding the borders of a Proof of Work (PoW) network against order disruptors, such as hackers. Notably, this role is often financially rewarding.
In our article “What is a Double Spend Attack?”, we delve into the tactics used by cybercriminals to breach the system.
What is a Hash Rate?
The hash rate in Bitcoin mining is the total computational power of the network at any given moment. It's the cumulative power of all the mining equipment in use. This key network metric quantitatively indicates the number of hashes that miners can generate every second to find the next block. The hash rate is measured in hashes per second (H/s), but due to modern computers' high computational capabilities, larger units like TH/s (terahashes per second) and PH/s (petahashes per second) are commonly used.
In terms of network security, a high hash rate plays a crucial role in preventing potential attacks. The higher the hash rate, the more challenging and costlier it becomes for hackers to gain control over 51% of the network's total power. Without achieving this threshold, manipulating transactions is not feasible. Therefore, the greater the number of miners participating in the blockchain, the more secure it becomes.
However, an increasing network hash rate also raises the difficulty level of mining a block. This is linked to the algorithms of certain blockchains, like Bitcoin, where the rate of new block creation is designed to remain constant. Thus, as the network's hash rate increases, it prompts an even higher hash rate until some miners are forced to exit the competition due to the high costs or inability to keep up. This leads to a subsequent fall in the hash rate and the mining difficulty.
The Current BTC Difficulty. Source: coinwarz
For insights on the correlation between hash rate and mining profitability, refer to our article “Why hash rate matters”.
What Do You Need to Mine Cryptocurrency?
If you're thinking about mining cryptocurrencies and expect to easily mine Bitcoin, you might be in for a disappointment.
A decade ago, mining BTC was feasible with just a standard computer equipped with a mid-range graphics processor. The lower complexity level of cryptographic calculations at that time made a gaming graphics card sufficient. However, the scenario has drastically changed, and mining now requires specialized equipment, known as mining rigs or ASICs.
Moreover, while solo mining used to be possible, it has now become more of an exception. As a result, miners typically join mining pools. The advantage of being in a pool is evident: it combines the processing power of multiple miners, increasing the likelihood of earning block rewards, which are then shared among all team members.
Mining BTC has scaled up to an industrial level and is mostly feasible for large companies that can set up their own data centers. In addition to powerful hardware, these organizations also ensure access to cost-effective energy sources and efficient cooling systems for the equipment.
Cryptocurrency Mining Scheme. Source: navi.com
For more information on the risks associated with mining pools, refer to our article “Mining Pools: A New Avenue for Money Laundering?“.
Does mining cause environmental pollution?
Yes, it does.
Bitcoin mining contributes to around 60 million tons of carbon dioxide emissions each year.
However, this is significantly lower than global emissions from vehicles or metallurgical industries. As such, CO2 emissions alone are not a strong enough reason to ban mining, as was the case with the New York State authorities.
The more critical issue is the high energy consumption of cryptocurrency mining. Verifying transactions on the Bitcoin blockchain annually requires seven times more electricity than all global operations of Google in the same period.
Around 160 TWh of electricity is used annually for mining BTC, surpassing the usage of countries like Argentina.
The crypto community, however, is aiming to change this status quo. Ethereum, for example, has shifted from a Proof-of-Work (PoW) algorithm to a Proof-of-Stake (PoS) model, significantly reducing its energy consumption.
Additionally, there is a growing trend of miners using renewable energy sources, such as:
The problem, therefore, isn't the amount of energy consumed by mining but where this energy is sourced and how it's distributed. From this viewpoint, blockchain technology is offering new opportunities for a fundamental restructuring of global energy logistics.
A Solar-Powered Mining Farm in California. Source: Medium
For insights into whether Bitcoin mining could be entirely phased out, refer to our article “Can Bitcoin Switch to Proof-of-Stake?”.
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