How does Bitcoin Mining work?

Bitcoin mining is a process in which computing power is provided for the transaction processing, protection and synchronization of all users on the network. The Mining is a kind of decentralized Bitcoin data center with miners from all countries. No single person has control over the network. This process is called “mining” in the same way as gold mining. Unlike bitchecking, bitcoin mining provides a reward for useful services. The payment of the respective bitcoin shares is based on the available computing capacity.

In traditional Fiat currency systems, governments, if needed, simply print more and more money. At Bitcoin, on the other hand, no money is printed – it is “scourged” itself or in the cloud (cloudmining). Around the world, computer calculators (calculates) bitcoin and compete with each other.

How does Bitcoin Mining work?

People transfer around the clock Bitcoins over the Bitcoin network, but even if all transactions are recorded, no one would be able to see who paid what.

The Bitcoin network does this by collecting all the transactions of a certain period of time and putting them together in a list – the so-called block. It is the job of the prospector (Miner) to confirm these transactions and to enter them in a “account book”. He is paid for this in bitcoin (the bitcoin transaction fee).

Create a hash

The “account book” is a long list of all blocks, which is also called blockchain.

The blockchain is used in Bitcoin Mining to be able to trace all transactions at any time. Whenever a new block is created, it is added to the blockchain, resulting in an endless list of all transactions. The blockchain is visible to everyone, so each user can see which transaction is being performed. However, you do not know who is doing this transaction. Bitcoin is thus transparent and anonymous at the same time.

But a general ledger has to be trustworthy and the entire process is digitized. So how can we ensure that the blockchain remains intact and never manipulated? The “miners” come into play.

When a block of transactions has been generated, they let the miners go through a process. You see the information and apply a mathematical formula that converts the transaction. After that the transaction is something much shorter, actually only a string of letters and numbers, also called hash. This hash is kept (in the block) at the end of the blockchain.

Hashes have some interesting features. It’s fairly easy to get a hash from the Bitcoin’s information, but it’s almost impossible to see what it was before. Since it is fairly easy to create a hash of a large number of records, each hash is unique. If only one character in the block is changed, the entire hash will change.

To create a hash, the miners use not only the data of the transaction in the block, but also other additional data. Part of the data is the hash in the last block of the blockchain.

Since each hash of a block uses the hash of the previous block, a kind of wax seal is created. He confirms that the current block and the before is valid, because if manipulated, it would notice everyone.

Would someone try to manipulate a transaction by changing the block already in the blockchain, then the would have to change also the hash. If someone verifies the authenticity of the block with the hashing function, one would notice directly that the hash does not match the one in the blockchain. The block would immediately be recognized as forgery.

Since each hash of a block is used to generate the hash of the next block in the blockchain, manipulation would also manipulate the following hashes.

What do I need to mine Bitcoin?

There are different ways of bitcoins to mines. On the one hand one can with Bitikins from so-called ASIC Minern themselves from at home and can be operated on the other cloud Mining.

In the case of cloudmining, the software and the required hardware components (miner) are rented by an external company for a fee in a “cloud”, and the scaled bitcoins or altcoins (monero, zcash, ether etc.) are credited directly to the wallet.

Bitcoins mining themselves

If you want to mine Bitcoin from your own home, you will need the following hardware and software components:

The right Bitcoin Miner hardware is critical

First you need a computer with a powerful graphics card *
Or you are using Bitcoin-Miner * specially designed for bitcoin mining via USB.
Alternatively, you can use a Raspberry Pi3 microcomputer * instead of the computer to run an external miner. This saves energy costs compared to a computer running 24/7.

Bitcoin Mining pool

Together we are stronger: That is exactly the motto of the mining pools. After all, if you’re alone, you need to find new blocks. It is almost hopeless, since the required computing capacity would be much too great.

A remedy is provided by the so-called mining pools. Here, the required computing capacity of all users is bundled and one is scrambling in a community. Thus one finds much more quickly new blocks and the remuneration in Bitcoin is divided according to the rendered computing capacity on the individual users.