What Is Bitcoin Mining? Why Mine Bitcoin?

In the process of traditional currency circulation, due to the exchange rate control between countries, people cannot exchange currencies freely, and the wealth of the world cannot be circulated around the world quickly, conveniently and at low cost.

Blockchain technology forms a global value network, where everyone can transfer assets to anyone in the world without restrictions, as long as they have a blockchain account such as Bitcoin or Ethereum.

There are many blockchain projects out there, but the only one that is fully decentralized is Bitcoin. The ideal state of many projects is an organization similar to Bitcoin, but the reality is somewhere between a fully decentralized organization and a traditional company.

Basic Concepts of Bitcoin

Bitcoin is a consensus network that enables new payment systems and fully digital currencies. It is the first decentralized peer-to-peer payment network powered by users without a central authority or middleman. From a user's perspective, Bitcoin is a lot like the cash of the internet. Bitcoin can also be regarded as the most prominent triple-entry accounting system in existence.

Mining is the process of consuming computing power to process transactions, secure the network, and keep everyone in the system in sync. It can be thought of as a Bitcoin data center, only it is designed to be completely decentralized, with miners operating in all countries and no individuals controlling the network. This process is called "mining" and is similar to gold mining because it is also a temporary mechanism for issuing new bitcoins. Unlike gold mining, however, Bitcoin mining provides rewards in exchange for useful services needed to operate a secure payment network. Mining is still required after the last bitcoin is issued.

The logic of Bitcoin mining operation

Anyone can become a Bitcoin miner by running software with specialized hardware. Mining software listens for transactions broadcast over a peer-to-peer network and performs appropriate tasks to process and confirm these transactions. Bitcoin miners perform this work because they earn transaction fees paid by users to speed up transaction processing and issue newly created bitcoins according to a fixed formula.

For new transactions to be confirmed, they need to be included in a block along with the mathematical proof of work. Such proofs are difficult to generate because there is no way to create them other than trying billions of computations per second. This requires miners to perform these calculations before their blocks are accepted by the network and rewarded. As more and more people start mining, the network automatically increases the difficulty of finding a valid block to ensure that the average time to find a block remains equal to 10 minutes. Therefore, mining is a very competitive business and no single miner can control what is contained in the blockchain.

Proof of Work is also designed to rely on the previous block to enforce chronological order in the blockchain. This makes it very difficult to undo previous transactions, as it requires recomputing the proof-of-work for all subsequent blocks. When two blocks are found at the same time, miners work on the first block they receive and switch to the longest chain as soon as the next block is found. This allows mining to secure and maintain global consensus based on processing power.

Bitcoin miners can neither cheat by increasing their own rewards nor handle fraudulent transactions that could disrupt the Bitcoin network, as all Bitcoin nodes reject any block containing invalid data according to the rules of the Bitcoin protocol. So even if not all Bitcoin miners can be trusted, the network is still secure.

Frequently Asked Questions:

Q1:How does mining help secure Bitcoin?

A1:Mining creates a competitive lottery that makes it difficult for anyone to continuously add new blocks of transactions to the blockchain. This protects the neutrality of the network by preventing any individual from gaining the power to block certain transactions. This also prevents any individual from changing part of the blockchain to roll back their own spending, which could be used to defraud other users. Mining makes it exponentially harder to undo past transactions by requiring all blocks to be rewritten after that transaction.

Q2What do I need to start mining?

A2:In the early days of Bitcoin, anyone could use their computer's CPU to find a new block. As more and more people started mining, the difficulty of finding new blocks increased so much that the only cost-effective way to mine today is to use specialized hardware.

Q3:What is an ASIC miner?

A3:ASIC mining machine refers to the mining machine that uses ASIC chip as the core computing part.

An ASIC chip is a chip specially designed for a specific purpose, not only for mining, but also for a wider range of applications. ASIC chips are characterized by simplicity and high efficiency. Due to the characteristics of centralized computing power, this type of mining machine can achieve higher computing speed with lower unit energy consumption.

Q4:What is mining difficulty?

A4:Mining difficulty is a concept born based on Bitcoin mining, which measures the difficulty of mining a block on the Bitcoin blockchain. The difficulty of Bitcoin mining is a dynamic parameter set to ensure that the generation rate of new Bitcoin blocks is generated every 10 minutes on average. When the network finds that the generation rate of blocks is faster than 10 minutes, it will increase the difficulty, and it will decrease when it is slower than 10 minutes. difficulty.

Q5:What is cryptocurrency mining?

A5:Cryptocurrency mining, in simple terms, is the process by which individuals use equipment to perform “jobs” that support the blockchain network in order to receive cryptocurrency rewards. The income of cryptocurrency mining mainly comes from two aspects: one is the reward for miners to mine new blocks, and the other is the income from transaction fee rewards.