What is Bitcoin Mining and How Does it Work?

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(/mining/)

Bitcoin mining seems crazy!

Computers mining for virtual coins? Is Bitcoin mining just free

money?

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Well, it's much, much more than that!

If you want the full explanation on Bitcoin mining, keep reading...

 Jordan Tuwiner (/about/#jordan)

 Last updated February 11, 2022

Chapters

CHAPTER 1

What is Bitcoin mining?

CHAPTER 2

How Does Mining Work?

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CHAPTER 3

How to Mine Bitcoins

CHAPTER 4

What is Mining Hardware?

CHAPTER 5

What are Mining Pools?

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CHAPTER 6

Inside the Mining Industry

Chapter 1

What is Bitcoin Mining?

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Bitcoin mining is the backbone of the Bitcoin network.

Miners provide security and confirm Bitcoin transactions.

Without Bitcoin miners, the network would be attacked and

dysfunctional.

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Bitcoin mining is done by specialized computers.

The role of miners is to secure the network and to process every Bitcoin
transaction.

Miners achieve this by solving a computational problem which allows them

to chain together blocks of transactions (hence Bitcoin’s famous
“blockchain”).

For this service, miners are rewarded with newly-created Bitcoins and
transaction fees.

Chapter 2

How Does Bitcoin Mining Work?

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What is Bitcoin mining actually doing?

Miners are securing the network and confirming Bitcoin
transactions.

Miners are paid rewards for their service every 10 minutes in the
form of new bitcoins.

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What is Bitcoin Mining Actually Doing?

What is the point of Bitcoin mining? This is something we're asked everyday!

There are many aspects and functions of Bitcoin mining and we'll go over
them here. They are:

1. Issuance of new bitcoins

2. Confirming transactions
3. Security

Mining Is Used to Issue new Bitcoins

Traditional currencies--like the dollar or euro--are issued by central banks.
The central bank can issue new units of money at any time based on what
they think will improve the economy.

Bitcoin is different.

With Bitcoin, miners are rewarded new bitcoins every 10 minutes.

The issuance rate is set in the code, so miners cannot cheat the system or
create bitcoins out of thin air. They have to use their computing power to
generate the new bitcoins.

Miners Confirm Transactions

Miners include transactions sent on the Bitcoin network in their blocks.

A transaction can only be considered secure and complete once it is

included in a block.

Why?

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Because only a when a transaction has been included in a block is it

officially embedded into Bitcoin's blockchain.

More confirmations are better for larger payments. Here is a visual so you
have a better idea:

Payments with 0 confirmations can still be reversed! Wait for at least

0
one.

One confirmation is enough for small Bitcoin payments less than

1
$1,000.

Enough for payments $1,000 - $10,000. Most exchanges require 3

3
confirmations for deposits.

Enough for large payments between $10,000 - $1,000,000. Six is

6
standard for most transactions to be considered secure.

Why Does Bitcoin Need Miners?

In short, miners secure the Bitcoin network.

They do this by making it difficult to attack, alter or stop the network.

The more miners that mine, the more secure the network.

The only way to reverse Bitcoin transactions is to have more than 51% of the
network hash power. Distributed hash power spread among many different
miners keeps Bitcoin secure and safe.

Chapter 3

How to Mine Bitcoins

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Actually want to try mining bitcoins?

Well, you can do it. However, it's not profitable for most people as
mining is a highly specialized industry.
Most Bitcoin mining is done in large warehouses where there is
cheap electricity.

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To be real:

Most people should NOT mine bitcoins today.

Most Bitcoin mining is specialized and the warehouses look something like
this:

Source ieee.org

That's who you're up against! It’s simply too expensive and you are unlikely
to turn a profit.

However:

For hobby mining, we’ll show you some steps you can take to get started
mining bitcoins right now.
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Step #1: Get Bitcoin Wallet

When earning bitcoins from mining, they go directly into a Bitcoin wallet.

You can't mine without a wallet.

COMPARISON

Ledger Nano X (/wallets/ledger-nano-x/)

SCREEN: 
RELEASED: 2019
PRICE: $150

LEARN MORE (/wallets/ledger-nano-x/)

Ledger Nano S (/wallets/ledger-nano-s/)

SCREEN: 
RELEASED: 2016
PRICE: $59

LEARN MORE (/wallets/ledger-nano-s/)

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TREZOR T (/wallets/trezor-t/)
SCREEN: 
RELEASED: 2018
PRICE: $320

LEARN MORE (/wallets/trezor-t/)

TREZOR One (/wallets/trezor/)

SCREEN: 
RELEASED: 2013
PRICE: $119

LEARN MORE (/wallets/trezor/)

If you aren't sure which one to buy, our best bitcoin wallets guide (/wallets/)
will help you select a wallet.

Step #2: Find a Bitcoin Exchange

When earning bitcoins from mining, you may need to sell the coins to pay
for power costs. You may also need to buy coins on exchanges.

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Step #3: Get Bitcoin Mining Hardware

You won’t be able to mine without an ASIC miner (/mining/hardware/).

ASIC miners are specialized computers that were built for the sole purpose
of mining bitcoins.

Don’t even try mining bitcoins on your home desktop or laptop computer!
You will earn less than one penny per year and will waste money on
electricity.

Step #4: Select a Mining Pool

Once you get your mining hardware, you need to select a mining pool.

We recommend Slush Pool, as it is the oldest and has the best User
Interface to make it easy to use. Check it out:

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Slush Pool User Interface makes it easy to get started FAST

Without a mining pool, you would only receive a mining payout if you found
a block on your own. This is called solo mining.

We don’t recommend this because your hardware’s hash rate is very

unlikely to be anywhere near enough to find a block solo mining.

How do mining pools help?

By joining a mining pool (/mining/pools/) you share your hash rate with the
pool. Once the pool finds a block you get a payout based on the percent of
hash rate contributed to the pool.

If you contributed 1% of the pools hashrate, you’d get .125 bitcoins out of the
current 12.5 bitcoin block reward.

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Step #5: Get Bitcoin Mining Software

Bitcoin mining software (/mining/software/) is how you actually hook your
mining hardware into your desired mining pool.

You need to use the software to point your hash rate at the pool.

Braiins is one of the more popular mining softwares on the market.

Also in the software you tell the pool which Bitcoin address payouts should
be sent to.

If you don’t have a Bitcoin wallet or address learn how to get one here
(/wallets/).

There is mining software available for Mac, Windows, and Linux.

Step #6: Is Bitcoin Mining Legal in your Country?

Make Sure!
This won’t be much of an issue in MOST countries.

Consult local counsel for further assistance in determining whether Bitcoin

mining is legal and the tax implications (/cryptocurrency-taxes/) of doing the
activity.
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Like other business, you can usually write off your expenses that made your
operation profitable, like electricity and hardware (/mining/hardware/) costs.

Step #7: Is Bitcoin Mining Profitable for You?

Do you understand what you need to do to start?

You should run some calculations and see if Bitcoin mining will actually be
profitable for you.

You can use a Bitcoin mining calculator (/mining/calculator/) to get a rough

idea.

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Our mining profitability calculator will help you figure out if mining will be
worth it

I say rough idea because many factors related to your mining profitability
are constantly changing.

A doubling in the Bitcoin price could increase your profits by two.

But:

It could also make mining that much more competitive so your profits remain
the same.

How to Mine Bitcoins on Android (/wallets/android/)

or iOS (/wallets/ios/)
Here’s what’s funny:

You actually CAN mine bitcoins on any Android device.

Using mining software (/mining/software/) for Android you can mine bitcoins
or any other coin.

What’s not so fun?

You’ll likely make less than one penny PER YEAR!

Why?

Android phones simply are not powerful enough to match the mining
hardware (/mining/hardware/) used by serious operations.

So, it might be cool to setup a miner on your Android phone to see how it
works. But don’t expect to make any money.

Do expect to waste a lot of your phone’s battery!

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Chapter 4

What is Bitcoin Mining Hardware

Bitcoin mining hardware (ASICs) are high specialized computers

used to mine bitcoins.
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The ASIC industry has become complex and competitive.

Mining hardware is now only located where there is cheap
electricity.

When Satoshi released Bitcoin, he intended it to be mined on computer

CPUs.

However:

Enterprising coders soon discovered they could get more hashing power
from graphic cards and wrote mining software (/mining/software/) to allow
this.

GPU Mining
GPU mining is when you mine for Bitcoins (or any cryptocurrency) using a
graphics card.

If you were to open your desktop computer right now, you'd likely see a
piece of hardware that looks like the one below:

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GPU mining was one of the earliest forms of mining, but is no longer
profitable due to the introduction of ASIC miners.

GPUs were surpassed in turn by ASIC

(https://en.wikipedia.org/wiki/Application-specific_integrated_circuit)s.

ASIC Miner
ASIC stands for "Application Specific Integrated Circuit". In plain English, that
just means it is a chip designed to do one very specific kind of calculation. In
the case of a Bitcoin ASIC miner, the chip in the miner is designed to solve
problems using the SHA256 hashing algorithm.

Here is what an ASIC looks like:

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You can learn more about ASIC Miners on our mining hardware page
(/mining/hardware/).

Nowadays all serious Bitcoin mining is performed on ASICs, usually in

thermally-regulated data-centers with access to low-cost electricity.

Economies of scale have thus led to the concentration of mining power into
fewer hands than originally intended.

Chapter 5

What Are Bitcoin Mining Pools?

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Mining pools allow small miners to receive more frequent mining

payouts.
By joining with other miners in a group, a pool allows miners to find
blocks more frequently.

But, there are some problems with mining pools as we'll discuss.

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As with GPU and ASIC mining, Satoshi apparently failed to anticipate the
emergence of mining pools.

Pools are groups of cooperating miners (/mining/pools/) who agree to share

block rewards in proportion to their contributed mining power.

The pie chart below displays the current distribution of total mining power
by pools:

While pools are desirable to the average miner as they smooth out rewards
and make them more predictable, they unfortunately concentrate power to
the mining pool’s owner.

Chapter 6

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Inside the Bitcoin Mining Industry

The mining industry has come a long way since the early days of
graphics card mining.
Today there are very professional industrial mining operations.
Let's take a look at how they work.

What does a mining farm look like?

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Let's take a look inside a real Bitcoin mining farm in Washington state.

Mining farms look very similar to a data center. They contain rows of
hardware with powerful fans to keep the miners from over heating.

Mining farms are typically very industrial looking - they aren't flashy or sleek.
Usually, its just a warehouse with great temperature control.

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Bitcoin mining farms exclusively use ASIC miners to mine various coins.
Many of these farms are minting several Bitcoins per day.

How much do crypto mining farms make?

How much a mining farm makes depends on many factors:

The price it pays for electricity

How old its mining hardware is
The scale of its operation
The price of Bitcoin when the miner sells it
The level of difficulty when the Bitcoin is mined

By far, the biggest factor affecting how much money a mining farm makes is
how much it pays for electricity. Nearly all mining farms are using the same
hardware.
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Since the reward for finding a block is fixed, and the difficulty is adjusted
based on total processing power working on finding blocks at any given
time, then electricity is the only cost that is variable. If you can find cheaper
power than other miners, you can afford to either increase the size of your
mining operation, or spend less on your mining for the same output.

How much electricity do mining farms use?

As previously mentioned, mining farms use a lot of electricity. How much
they consume depends on how big their operation is. However the latest
Bitmain ASIC miner consumes about 1350 watts.

In total, it is estimated that all mining farms will use about 127 Terawatt hours
of electricity in the year 2021. That is roughly the equivalent to the yearly
energy consumption of Norway.

Where are mining farms located?

Mining farms are located all over the world. We don't know where every
mining farm in the world is, but we have some educated guesses.

Most of the mining has been and still is located in China.

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Why is so much Mining happening in China? Samson Mow of Blockstream

and former CTO of BTCC mining pool explains.

The main advantages of mining in China are faster setup times and
lower initial CapEx which, along with closer proximity to where ASICs
are assembled, have driven industry growth there

Samson Mow
CSO, Blockstream

Bonus Chapter 1

Colocation Mining

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In this bonus chapter, we will learn about colocation bitcoin mining

and its differences from cloudmining.
If you were interested in cloud mining, but are worried about falling
victim to a scam, then this is the closest thing to it.

What is Colocation Mining?

Colocation mining is a business arrangement between a bitcoin mining
management company and a customer.

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The management company establishes a location to mine the bitcoins at

and strikes a deal with a power company to get favorable prices on
electricity.

Compass Mining, a colocation company, offers many options on where you

can host your miners.

The management company also has relationships with ASIC producers in

order to get favorable prices on mining ASICs.

Finally, the management company employs workers to make sure the ASICs
run smoothely while keeping the location safe from theives.

Something very unique about colocation miners is that the management

company may not own any of the ASICs itself.

Who owns the miners?

Well, you, the customer, do.

You contact the management company running the colocation mine, and
purchase ASICs through them. The management company acts as a kind of
ASIC broker.

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The hardware purchase page on Compass Mining's Website

Once you have purchased your ASICs, the management company receives
them at their mining location and installs them for you

How Does the Colocation Company Make Money?

The colocation management company makes money in several ways. Each
management company is different, but they all make money using one or
more of the following ways:

1. They charge you a monthly hosting fee for maintaining the miners and
keeping them safe in their mine.
2. They make a commission for arranging the sale of the ASICs to you.
3. They take a cut of the mining profits from all the miners in the mine.
4. They add a surcharge onto the electricity that your ASICs consume in
their mine.
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5. ASIC repair services in case your miners ever needs to be repaired.

So to summarize: in a colocation mining operation, you own, control, and

monitor your own ASICs. The colocation mine custodies them and lets you
know if there are any issues with them. They also keep them safe by
securing and maintaining the mining site.

So now you may be wondering, how is this different from cloud mining?

First, we need to define what Cloud Mining is.

What is Cloud Mining?

Cloud mining is a business arrangement where a miner owns all of the
ASICs in his mine.

He offers to sell some of his hashing power to you, the customer and you
get any bitcoin mined using that hashing power.

In a cloud mining arrangement, you do not own anything.

You are effectively renting the hashing power from the miner in exchange
for potential profits in bitcoin.

The Big Problem with Cloud Mining

There's just one problem with this arrangement.

Since you do not own the ASICs, you have no control over what they mine,
when they mine, how they mine, etc.

And because of this, cloud mining attracts lots of scammers.

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An old screenshot of Hash Ocean's website promising free bitcoin rewards

for life for early sign ups. They ended up being a scam.

In most cases, in a cloud mining operation...there are no miners.

They don't exist. At all.

The only reason you ever make money is because someone else signed up
and paid the cloud miner money to get started.

which means that cloud mining operations are almost always ponzi scams.
New customers pay off the old ones until there are no new people to sign
up.

At that point, the founders run away with as much money as they can.

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Mining City, another famous cloud miner, was running a ponzi scheme
where the founders ran away with the money.

And since no one actually owns any ASICs (including the cloud miner
himself), there are no assets to liquidate to pay back the victims.

It's all fictitious.

How is Colocation Mining different from Cloud

Mining?
Aside from the fact that one of these models is typically legitimate and the
other is typically a scam, there are some other differences even if you
assume the cloud miner is running an honest operation.

First, in colocation mining, you own the ASICs. In cloud mining, you don't.

Second, because you own the ASICs in colocation mining, you get to
decide which coins you want to mine and how you want to mine them. In
cloud mining, you just pay money to a miner and hope you get more back
than you put in. It's up to him to decide how and what to mine.

Is Colocation Mining a Good Alternative to Cloud Mining

If you want to mine, but don't think you have enough money or experience
to start your own mining farm, then colocation can be a great way to start
mining.

It allows you to leverage the bargaining power on electricity and ASICs of a

big mining operation without having to put up millions of dollars to start
mining. In exchange for this, you pay a small fee and don't need lots of
expertise to get going.

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You can get started with colocation mining right now by setting up an
account over at compass mining.

They make it super simple to get started, and you'll be mining in no time!
Just pick a piece of hardware below (subject to availability) and you'll be
sent to Compass's site.

Miner Hash Power Price*

Antminer S19
95.0 TH/s $10k-12k
(https://compassmining.go2cloud.org/SH3)

Antminer S19 Pro

110.0 TH/s $15k-17k
(https://compassmining.go2cloud.org/SH3)

WhatsMiner M30S+
100.0 TH/s $8,500
(https://compassmining.go2cloud.org/SH3)

*BuyBitcoinWorldwide.com averages prices from various online sources.

Actual prices may vary depending on seller.

Bonus Chapter 2

Important Bitcoin Mining Terms

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In this bonus chapter, we will learn about some of the most

common terms associated with bitcoin mining.
If you are thinking about mining at any level, understanding what
these terms means will be crucial for you to get started.

Miner
Anyone who mines Bitcoins (or any other cryptocurrency).

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Block Reward
The block reward is a fixed amount of Bitcoins that get rewarded to the
miner or mining pool that finds a given block.

Mining Pool
A collection of individual miners who 'pool' their efforts or hashing power
together and share the block reward. Miners create pools because it
increases their chances of earning a block reward.

learn more about mining pools (/mining/pools/).

Block Reward Halving

Approximately every 4 years, the block reward gets cut in half. The first
block reward ever mined was in 2008 and it it was for 50 Bitcoins. That
block reward lasted for four years, where in 2012, the first reward halving
occurred and it dropped to 25 Bitcoins.

In 2016, a second halving occurred where the reward was reduced to 12.5
Bitcoins. And as of the time of this writing, we are on the cusp of the third
halving (ETA May 11th), where the reward will be cut down to 6.25 Bitcoins.
You can find the most up to date estimation of exactly when the next halving
will occur on our bitcoin block reward halving clock. (/bitcoin-clock/)

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Hashing Power (or Hash Rate)

How many calculations (hashes) a miner can perform per second.

Or it can refer to the total amount of hashing done on a chain by all miners
put together - also known as "Net Hash".

You can learn more about Hash Rate by reading our article about it.

Difficulty

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Measured in Trillions, mining difficulty refers to how hard it is to find a block.

The current level of difficulty on the Bitcoin blockchain is the primary reason
why it is not profitable to mine (/mining/profitability/) for most people.

Difficulty Adjustment
Bitcoin was designed to produce block reliably every 10 minutes. Because
total hashing power (or Net Hash) is constantly changing, the difficulty of
finding a block needs to adjust proportional to the amount of total hashing
power on the network.

In very simple terms, if you have four miners on the network, all with equal
hashing power, and two stop mining, blocks would happen ever 20 minutes
instead of every ten. Therefore, the difficulty of finding blocks also needs to
cut in half, so that blocks can continue to be found every 10 minutes.

Difficulty adjustments happen every 2,016 blocks. This should mean that if a
new block is added every 10 minutes, then a difficulty adjustment would
occur every two weeks. The 10 minute block rule is just a goal though.
Some blocks are added after more than 10 minutes. Some are added after
less. Its a law of averages and a lot if left up to chance. That doesn't mean
that for the most part, blocks are added reliably every 10 minutes.

Kilowatt Hour
A measurement of energy consumption per hour. Most ASIC miners will tell
you how much energy they consume using this metric.

Bonus Chapter 3

Is Bitcoin Mining a Waste of Electricity?

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The media constantly says Bitcoin mining is a waste of electricity.

But, there are some problems with their theories as we'll discuss.

Isn’t Mining a Waste of Electricity?

Certain orthodox economists have criticized mining as wasteful.

It must be kept in mind however that this electricity is expended on useful

work:

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Enabling a monetary network worth billions (and potentially trillions) of

dollars!

Compared to the carbon emissions from just the cars of PayPal’s employees
as they commute to work, Bitcoin’s environmental impact (/bitcoin-mining-
statistics/) is negligible.

As Bitcoin could easily replace PayPal, credit card companies, banks and
the bureaucrats who regulate them all, it begs the question:

Isn’t traditional finance a waste?

Not just of electricity, but of money, time and human resources!

Mining Difficulty
If only 21 million Bitcoins will ever be created, why has the issuance of
Bitcoin not accelerated with the rising power of mining hardware?

Issuance is regulated by Difficulty, an algorithm which adjusts the difficulty of

the Proof of Work problem in accordance with how quickly blocks are
solved within a certain time frame (roughly every 2 weeks or 2016 blocks).

Difficulty rises and falls with deployed hashing power to keep the average
time between blocks at around 10 minutes.

For most of Bitcoin's history, the average block time has been about 9.7
minutes. Because the price is always rising, mining power does come onto
the network at a fast speed which creates faster blocks. However, for most
of 2019 the block time has been around 10 minutes. This is because
Bitcoin's price has remained steady for most of 2019.

Block Reward Halving

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Satoshi designed Bitcoin such that the block reward, which miners
automatically receive for solving a block, is halved every 210,000 blocks
(/bitcoin-clock/) (or roughly 4 years).

As Bitcoin’s price has risen substantially (and is expected to keep rising over
time), mining remains a profitable endeavor despite the falling block
reward… at least for those miners on the bleeding edge of mining hardware
(/mining/hardware/) with access to low-cost electricity.

Honest Miner Majority Secures the Network

To successfully attack the Bitcoin network by creating blocks with a falsified
transaction record, a dishonest miner would require the majority of mining
power so as to maintain the longest chain.

This is known as a 51% attack

(http://bitcoin.stackexchange.com/questions/658/what-can-an-attacker-with-
51-of-hash-power-do) and it allows an attacker to spend the same coins
multiple times and to blockade the transactions of other users at will.

To achieve it, an attacker needs to own mining hardware than all other
honest miners.

This imposes a high monetary cost on any such attack.

At this stage of Bitcoin’s development, it’s likely that only major corporations
or states would be able to meet this expense… although it’s unclear what
net benefit, if any, such actors would gain from degrading or destroying
Bitcoin.

Mining Centralization
Pools and specialized hardware (/mining/hardware/) has unfortunately led to
a centralization trend in Bitcoin mining.

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Bitcoin developer Greg Maxwell has stated that, to Bitcoin’s likely detriment,
a handful of entities (https://youtu.be/0iQSRGT3nfE?t=1360) control the vast
majority of hashing power.

It is also widely-known that at least 50% of mining hardware is located within

China.

However, it’s may be argued that it’s contrary to the long-term economic
interests of any miner to attempt such an attack.

The resultant fall in Bitcoin’s credibility would dramatically reduce its

exchange rate, undermining the value of the miner’s hardware investment
and their held coins.

As the community could then decide to reject the dishonest chain and
revert to the last honest block, a 51% attack probably offers a poor risk-
reward ratio to miners.

Bitcoin mining is certainly not perfect but possible improvements

(https://www.youtube.com/watch?v=J52AM5SrOHw&feature=youtu.be) are
always being suggested and considered.

How Does Bitcoin Mining Work?

This simplified illustration is helpful to explanation:

1) Spending

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Let’s say the Green user wants to buy some goods from the Red user. Green
sends 1 bitcoin to Red.

2) Announcement
Green’s wallet announces a 1 bitcoin payment to Red’s wallet. This
information, known as transaction (and sometimes abbreviated as “ tx”) is
broadcast to as many Full Nodes as connect with Green’s wallet – typically
8. A full node is a special, transaction-relaying wallet which maintains a
current copy of the entire blockchain.

3) Propagation
Full Nodes then check Green’s spend against other pending transactions. If
there are no conflicts (e.g. Green didn’t try to cheat by sending the exact
same coins to Red and a third user), full nodes broadcast the transaction
across the Bitcoin network. At this point, the transaction has not yet entered

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the Blockchain. Red would be taking a big risk by sending any goods to
Green before the transaction is confirmed. So how do transactions get
confirmed? This is where Miners enter the picture.

4) Processing by Miners
Miners, like full nodes, maintain a complete copy of the blockchain and
monitor the network for newly-announced transactions. Green’s transaction
may in fact reach a miner directly, without being relayed through a full node.
In either case, a miner then performs work in an attempt to fit all new, valid
transactions into the current block.

Miners race each other to complete the work, which is to “package” the
current block so that it’s acceptable to the rest of the network. Acceptable
blocks include a solution to a Proof of Work
(https://en.bitcoin.it/wiki/Proof_of_work) computational problem, known as
ahash (https://en.wikipedia.org/wiki/Hash_function) . The more computing
power a miner controls, the higher their hashrate and the greater their odds
of solving the current block.

But why do miners invest in expensive computing hardware

(/mining/hardware/) and race each other to solve blocks? Because, as a
reward for verifying and recording everyone’s transactions, miners receive a
substantial Bitcoin reward for every solved block!

And what is a hash? Well, try entering all the characters in the above
paragraph, from “But” to “block!” into this hashing utility.
(http://www.fileformat.info/tool/hash.htm) If you pasted correctly – as a string

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hash with no spaces after the exclamation mark – the SHA-256 algorithm
used in Bitcoin should produce:

“6afc21238f2d33e24e168195888721dd5ace05d76196671d6739789af92201ed.”

If the characters are altered even slightly, the result won’t match. So, a hash
is a way to verify any amount of data is accurate. To solve a block, miners
modify non-transaction data in the current block such that their hash result
begins with a certain number (according to the current Difficulty, covered
below) of zeroes. If you manually modify the string until you get a 0… result,
you’ll soon see why this is considered “Proof of Work!”

5) Blockchain Confirmation
The first miner to solve the block containing Green’s payment to Red
announces the newly-solved block to the network. If other full nodes agree
the block is valid, the new block is added to the blockchain and the entire
process begins afresh. Once recorded in the blockchain, Green’s payment
goes from pending to confirmed status.

Red may now consider sending the goods to Green. However, the more
new blocks are layered atop the one containing Green’s payment, the
harder to reverse that transaction becomes. For significant sums of money,

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it’s recommended to wait for at least 6 confirmations. Given new blocks are
produced on average every ten minutes; the wait shouldn’t take much
longer than an hour.

The Longest Valid Chain

You may have heard that Bitcoin transactions are irreversible, so why is it
advised to await several confirmations? The answer is somewhat complex
and requires a solid understanding of the above mining process:

Let’s imagine two miners, A in China and B in Iceland, who solve the current
block at roughly the same time. A’s block (A1) propagates through the
internet from Beijing, reaching nodes in the East. B’s block (B1) is first to
reach nodes in the West. There are now two competing versions of the
blockchain!

Which blockchain prevails? Quite simply, the longest valid chain becomes
the official version of events. So, let’s say the next miner to solve a block
adds it to B’s chain, creating B2. If B2 propagates across the entire network
before A2 is found, then B’s chain is the clear winner. A loses his mining
reward and fees, which only exist on the invalidated A -chain.

Going back to the example of Green’s payment to Red, let’s say this
transaction was included by A but rejected by B, who demands a higher fee
than was included by Green. If B’s chain wins then Green’s transaction won’t
appear in the B chain – it will be as if the funds never left Green’s wallet.

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Although such blockchain splits are rare, they’re a credible risk. The more
confirmations have passed, the safer a transaction is considered. This is why
what is known as '0-conf' or "0 confirmations" on the Bitcoin Cash
blockchain is so dangerous.

b
Bonus Chapter 4 w

Frequently Asked Questions

If you're still a bit confused about what Bitcoin mining is, that's
okay. That's one reason I built this site, to make it easier to
understand!

I've curated this FAQ to help to answer any remaining questions.

Can I invest in Bitcoin Miner stocks?

Is Mining With a GPU still profitable?

How Will the New US Infrastructure Bill Affect Miners?

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