How Does Bitcoin Mining Work?

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Tokeneo
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4 min reading

Interest in cryptocurrencies is constantly growing. Bitcoin and many other coins are becoming increasingly popular. Therefore, in this article we will discuss the matter of bitcoin mining, which is one of the methods of obtaining digital currency. If you don't know what it is all about and how to start mining, this article is just for you!

bitcoin mining how does it work

Bitcoin mining - basic information

Bitcoin mining, means approving new blocks and attaching them to an existing blockchain. A block is the place where new coins are issued and subsequent transactions are approved. The process of cryptocurrencies mining is carried out by so-called miners. Mining is usually carried out by means of sufficiently powerful computers - excavators. The process  is most often based on the Proof-of-Work (PoW) consensus algorithm or its alternative - Proof-of-Stake (PoS). In the next part of the article we will discuss both of these methods. 

Bitcoin mining - how does it work?

To mine a new block using the Proof-of-Work method, you need to solve a specific cryptographic problem. In the case of Bitcoin, the problem is to find a sequence of characters, the so-called hash, which meets the relevant equation. 

The miners' task is to generate a baseline value, consisting of the hash of the previous block and a random number (nonce). The output value must be smaller than the target value defined by the protocol. The miner, who will generate an appropriate solution, announces it in the network. The other participants verify the correctness of the found hash. If the solution is confirmed, the block is considered as excavated. Then the miner who has generated the hash receives a reward in the form of a certain number of bitcoins. 

In the case of the Proof-of-Stake method, the extraction of coins depends on many factors, one of which is the state of cryptocurrency wallet. The more coins a user stores on his wallet, the greater chance he has to get another . 

However, the amount of coins is not the decisive thing in transaction confirming. Other factors, including random ones, are also important. Such a solution prevents the creation of a monopoly. Mining with the PoS method does not require investing in specialist equipment. An ordinary computer is enough to start mining. 

If you want to start your journey with Bitcoin mining, you need to install special wallet on your hard drive, which contains the entire blockchain, i.e. all transactions from the beginning of Bitcoin's network. When the wallet is ready to use, you should transfer coins to it and start mining. At all the time during the mining process, the computer must be started up and connected to the Internet. 

How to start mining Bitcoin

The most popular way of bitcoin mining is to use the so-called crypto excavator. On the market we can find two types of excavators: built on the basis of dedicated ASICs or a set of graphics cards. The advantages of this method are the possibility of reselling the excavator, as well as independent work management. However, mining with an excavator is associated with the purchase of expensive equipment, and high energy consumption charges. Moreover, it requires additional knowledge. 

If you are a beginner and you are considering how to start mining, other ways are worth looking into. Cryptocurrencies excavators are an expensive investment that often only professional miners can afford. Previously described Proof-of-Stake method also allows mining without using specialist equipment. It also use much less energy.

An alternative way is to Cloud Mining. In simple terms, mining in the cloud is simply about renting the power of  somebody's the excavators. There are a huge number of sites on the Internet that offer cloud mining. It is worth mentioning, that often the mines offering such solutions are scams, and do not have any excavators. 

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