Ever since the first bitcoin was launched, the face of monetary and financial transactions has changed a lot. The process of evolution is inevitable. Just as the barter system was taken over by coins, and coins were taken over by paper money. Digital currency is slowly taking over the paper currency. Just as the users have started to understand the benefits of using digital currency, many have shifted towards it. But, even though to users, the digital currency seems a bit simple and efficient, there is a lot going on at the back end. The whole system is error free and requires the assistance of the miners. You might have heard a lot about bitcoin mining, but your understanding is not as simple as you think. There is a whole process behind mining, and it is quite a complex one.
Here is a quick overview of the most popular and widely used digital currency called bitcoin, what its benefits are, and how the mining process has evolved over the year.
What is bitcoin?
Bitcoin is a digital currency that bypasses the need for paper currency. This is decentralized that is made to allow successful and easy peer-to-peer transactions by eliminating third-party involvement. Thus, no matter in which part of the world you live in, you can now make payments and transactions quickly without any involvement of a bank or financial institute. However, it is not just used for making payments or transactions. In fact, you can also use it as an investment. Because of the continuous increase in its value, it is a hot topic from an investment point as well. As a reason of this cyberattacks on this and other cryptocurrencies investments increased lately. In order to find out how to prevent from them, check icoholder.com.
What are the advantages of bitcoin?
There are several prominent advantages of using bitcoins. These are:
- It is a decentralized system, so the transactions occur directly without the involvement of a third party. The third-party can either be government, a bank, or any financial institute.
- It is a highly secure system. since it uses blockchain technology, the information stays highly secured.
- It eliminates paperwork altogether. All you need is a bitcoin wallet.
- It is a fast mode, so you don’t have to wait for a week to send or receive payment.
What is bitcoin mining?
Imagine the literal meaning of mining. It is to get something out from the rubble or ground. You have to work to sort the thing out from a pile of irrelevant things. You can imagine it to be the same thing but with a little more complexity. The first thing is that you have to do everything digitally.
In simple words, bitcoin mining is a verification of all the bitcoin transactions and recording them in a ledger. Now the thing is that not everyone can verify the transactions. You have to be a part of the system. So, if you are a bitcoin user, you are eligible to verify a transaction. If you are an active participant in the bitcoin system, you can mine bitcoin. All you need is the necessary hardware for the purpose and computing power. Those who mine the bitcoins are known as miners. Once the miner mines it, they earn a reward. Therefore, you can start mining it and make it your profession. You will get paid forever; bitcoin you mine. Here is an example of how it works:
If A has to pay five bitcoins to B, as A does that, the data of the transaction will be shared in the memory pool with its users. The memory pool is a digital place where unauthorized transactions sit until they are mined and become authorized. Bitcoin miners will get hold of this unverified transaction and will validate it through proof of work. Once the transaction is verified, a nonce is generated, and as a result, node starts giving approvals. As maximum modes approve of the transaction, it becomes valid and is converted into a block, and is added to the blockchain. So, the first miner to find an unconfirmed transaction is the one that has solved the puzzle and will receive a reward for the efforts he has put in. miners are rewarded in terms of bitcoins as well.
You might think it is an easy task but let me tell you it is a very hardworking job. It required both hard work and a bit of luck as well.
How was bitcoin mining evolved over time?
In the early days of bitcoin, because not many people trusted to use this technology, the number of miners was also limited. Back in the day, anyone could become a miner. All they needed was standard multi-core CPUs and stable internet. Having a few computers that were running was ample for you to earn bitcoin. Furthermore, because there were a few people who participated in bitcoin transactions, the computing power needed was also low.
However, just as the number of transactions increased, the need for computing power also increased. Things got a bit cluttered, and therefore the need for equipment also changed a lot. With the passage of time, GPU (graphic processing unit) was also made an integral part of the system.
By June 2011, bitcoin mining wasn’t just for tech-geeks. It became a full-fledged business, and that’s why to counter the mining problems, field-programmable gate arrays or FPGAs were introduced. This hardware was an instant hit because it required three times less computing power.
Lastly, FPGAs were soon replaced by application-specific integrated circuit or ASIC systems. It was the point when this hardware changed it to a booming industry. The reason for which ASIC hardware was created was specifically for the purpose of mining. Today this hardware is a huge investment for those who are lured by the idea of getting bitcoins in reward. It is an investment worth the bitcoins!