Mining: Using computational power to solve complex cryptographic algorithms on a blockchain in order to get block rewards in a form of digital coins.
When you say “mining” to millennials, most likely they would think about cryptocurrency mining in the first place! What is mining and how does it work?
Bitcoin, as well as other cryptocurrency mining, is a process performed by high-powered computers that solve complex math problems. By solving these problems on the network, they produce new coins, which is a reward for mining a block and make the payment network trustworthy and secure, by verifying its transaction information.
The Bitcoin block mining reward is reduced by half every 210,000 blocks, which happens approximately every 4 years. The next halving is expected to take place in May 2020.
Bitcoin is a blockchain network not regulated by any central authority, which we call decentralized now. Instead, Bitcoin is backed by millions of computers across the world known as nodes. Nodes store information about prior transactions on distributed ledgers and help to verify their authenticity.
Once the transaction on the Bitcoin network is made, the information about it is recorded in the next block’s code, and so on. Bitcoin miners clumping transactions together in blocks and adding them to a public record – blockchain. That’s how blockchain technology is today known for its trustworthiness.
As compensation for their efforts, miners are awarded bitcoin whenever they add a new block of transactions to the blockchain. The amount of new Bitcoin released with each mined block is called the block reward. In 2009, it was 50 BTC. In 2013, it was 25 BTC, in 2018 it was 12.5 BTC, and in the middle of 2020, it will halve to 6.25 BTC.
The computational problem that miners have to solve is called Proof-of-Work. The difficulty level is adjusted every 2016 blocks, or roughly every 2 weeks, with the goal of keeping rates of mining constant. That is, the more miners there are competing for a solution, the more difficult the problem will become. Today, bitcoin mining is so competitive that it can only be done profitably with the most up-to-date ASICs.
Back in 2009 it Satoshi Nakamoto’s computer mined first Bitcoin blocks. The first Bitcoin adopter was Hal Finney, who downloaded Bitcoin software and started “Running bitcoin”. Did you know that he received the first Bitcoin transaction of 10 BTC from Nakamoto?
Today, Even with the newest technology, one computer is rarely enough to compete with what miners call mining pools. A mining pool is a group of miners who combine their computing power and split the mined Bitcoin between participants.
The Bitcoin network can process about seven transactions per second, with transactions being logged in the blockchain every 10 minutes. To compare, a matching engine on BTCMEX delivers up to 100,000 TPS. Such technology like Lightning Network was introduced recently to improve the Bitcoin scalability, but there’s still no consensus about improvements.