Since its invention in 2009, Bitcoin has been taking the financial sector by storm. Over the last couple of years, its value has risen significantly, amounting to a little over 900 Euro in 2020. With its ever-increasing popularity among different kinds of buyers, sellers and investors, it can be useful to gain an understanding of the main features of Bitcoin. In this article, we’ll be discussing how bitcoin mining works, how long it takes to mine a bitcoin (and how they need to be mined) as well as the current difficulty rate among other details. Before we get into all of this, let’s start from the basics.
What Is Bitcoin?
Bitcoin is a digital cryptocurrency that is completely virtual. It is an online version of the payment of cash. bitcoin is produced by computers all around the world using free software and is held electronically in programs called wallets.
This cryptocurrency can be used to pay for things electronically if both parties are willing. In that sense, it works like the conventional currencies such as the Euro, Dollar, Sterling or Yen among others (which can also be traded digitally using ledgers owned by centralized banks). Unlike payment services such as credit cards or PayPal, however, once you send a bitcoin, you cannot get it back. This means that once a transaction is out, it is irreversible.
On the other hand, the main feature of a bitcoin is that it does not depend on a centralised system of banking. It is not controlled by any central authority: the decentralized nature of the blockchain makes cryptocurrencies theoretically immune to any potential governmental control or interference. When you send a bitcoin (or a mere fraction of a bitcoin) to another person, the entire network takes part. This of feature is called decentralisation and is the explanation as to why Bitcoin is so popular.
Bitcoin also allows for anonymous payments. Bitcoins can be used to buy services or products anonymously. Another benefit of this cryptocurrency is that international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value.
When it comes down to it, each user is only identified by his or her address of wallet, which is the available way of tracing a user. That being said, global law enforcement has been developing methods tracing bitcoin users, should they need to uncover their identities.
Bitcoin can be used to book hotels, pay for different kinds of services or buy products or goods of varied types of makes. However, it still isn’t that common among shops and retail businesses and some countries have even banned it all together.
Ever since its price skyrocketed into the thousands in 2017, Bitcoin has been primarily sought after for trading purposes.
How Does Bitcoin Mining Work?
To start off, the term ‘to mine a bitcoin’ in this sense refers to the process of adding transactional records to the Bitcoin’s public ledger, also known as the Blockchain. Where Bitcoin promotes anonymity, the Blockchain promotes transparency (without the need for a central authority). This is because it is a public ledger where all Bitcoin transactions are held. The Blockchain exists so that every transaction can be accounted for, and that every Bitcoin holder can access this information-storing ledger. It is also used to tell apart the difference between legitimate Bitcoin transactions from fraudulent attempts of re-spending money that has already been spent somewhere else.
A lot of people are interested in learning how to mine a bitcoin. Why? By mining, people can earn cryptocurrency, without having to spend their actual money for it. This is because of the fact that, when you mine a bitcoin, you receive rewards for completing Blockchain ‘blocks’ of legitimate transactions which are added to the ledger. Mining rewards are given to the miner who comes up with a mathematical solution to a difficult puzzle. This is, in fact, the main reason as to why many choose to mine a bitcoin – for the prospect of being rewarded with valuable bitcoin tokens.
The ultimate purpose of mining a bitcoin is to upkeep, legitimise and keep a record of the Bitcoin network and its Blockchain. Hence, the bitcoin reward received for anyone who mines a bitcoin acts as an incentive which essentially is there to keep the wheel turning. In recent years, mining rewards have decreased. In May 2020, mining rewards halved by standing at 6.25 bitcoins per block achieved (In 2017, this reward stood at 12.5 per block).
Essentially, when users mine a bitcoin they are getting paid for their work as auditors. They are doing the work of verifying and accounting for previous bitcoin transactions. This convention is meant to keep Bitcoin users honest. By verifying transactions, miners are helping to prevent the ‘double-spending scenario’. This intrinsically refers to a scenario in which a bitcoin owner spends the same bitcoin twice. This is the catch in cryptocurrency. In real life with physical money, you can’t actually spend a Euro or Dollar note twice in a store. Once you hand a service provider your money, it is theirs and the service has been done onto you. With digital currency, however, the situation can get a bit more tricky.
Theoretically, getting familiar with the information about what it takes to mine a bitcoin can be simple. However, in order for bitcoin miners to actually earn rewards for verifying transactions, two challenges have to be overcome.
Firstly, bitcoin miners must verify 1 megabyte worth of transactions, which can theoretically be as small as 1 transaction but are more often several thousand, depending on how much data each transaction stores. This means that a lot of time for a lot of data is required. Secondly, miners also have to solve a computational mathematical problem, also referred to as the ‘proof of work’. This will enable them to ultimately add a block of transactions to the ledger.
To delve into more detail about the computational mathematical problem needed to mine a bitcoin, what miners are actually doing is this. They have to try to come up with a 64-digit hexadecimal number known as a ‘hash’.After this, a miner’s computer spits out hashes at a rate of megahashes per second (MH/s), gigahashes per second (GH/s), or even terahashes per second (TH/s) depending on the unit, whilst basically guessing all possible 64-digit numbers until they arrive at a solution. In other words, mining is often a gamble.
Now that you’re familiar with what exactly goes into a miner’s role whose attempt is to mine a bitcoin, we’ll get into how long it takes to mine a bitcoin.
How Long Does it Take to Mine a Bitcoin?
As soon as it became released that people can get rewarded if they mine a bitcoin, bitcoin mining turned into a popular practice among investment enthusiasts and blockchain experts. In 2020, it is arguably carried out successfully by major mining corporations. Nowadays, we have progressed considerably in terms of software and hardware for Bitcoin mining. Instead of amping up the software and hardware, there is a whole machine designed to solve complex computational algorithms to mine bitcoin.
There are a lot of things that need to be taken into consideration in order to determine how long it takes to mine a bitcoin (which we’ll be discussing further down below). In the best possible case scenario with the ideal equipment and chance, it should take around 10 minutes to process 1 bitcoin.
While this may not seem like much, to achieve this you’ll need to have the odds (and the right hardware and software) to help you succeed. To add on, it takes a large setup nearly 30 days to mine a bitcoin or 1 BTC. One also needs to consider hardware, software and electricity costs – if one works hard to mine 1 bitcoin every month, he or she will only be left with around 0.1 BTC of profit. Indeed, the speed of mining depends on plenty of factors.
What Determines How Long it Takes to Mine Bitcoin?
A number of factors play a significant role in determining the bitcoin mining process.
The type of equipment used is crucial, as is a computer’s power. Mining bitcoins requires miners to solve computational cryptographical problems, so your hardware needs to be advanced enough to accomplish this. Where central processing units were able to handle bitcoin mining in the past, it has become close to impossible now. A new breed of devices has mostly replaced them. Bitcoin mining is something that requires a lot of power. To mine a bitcoin means to take part in an energy-intensive operation, so your device needs to be energy-efficient and sufficiently durable to withstand the demands of operating at the maximum level, at a frequent rate.
A miner’s hardware affects the mining process so much, that since a lot of electricity is required, bitcoin mining is only feasible in countries where the costs of electricity are relatively low. Otherwise, miners will end up losing more than they gain.
- Going solo or joining a pool
Most bitcoin miners tend to carry out their mining as part of a pool, rather than doing it on their own. Of course, this affects the speed of bitcoin mining processing significantly. Unlike Bitcoin mining pools, which essentially guarantee smaller regular payouts and eliminate most of the risks involved with Bitcoin mining, solo mining is more of a gamble as you’ll be doing everything on your own, without any help that could possibly tilt the odds in your favour. However, mining on your own but can also be more rewarding. Since solo miners don’t need to pay any mining pool fees, the overall mining profitability can be slightly higher than working with a pool, especially among a major pool mining organisation. The higher the competition a miner faces (within the same pool or externally), the slower the bitcoin mining becomes.
- The Bitcoin Mining Difficulty
When it comes to mining a bitcoin, the mining difficulty is a way to measure how ‘difficult’ and time-consuming bitcoin mining is. As the cryptocurrency that is Bitcoin becomes more and more popular, the number of computers participating in its peer-to-peer network increases. Miners are essentially competing against each other for the higher reward available. With more participants and more computing power, the so-called ‘hashpower’ of the entire network increases accordingly. What happens is that when more miners join in, validating transactions naturally takes less time. So the network raises the difficulty of slowing down block production. Mining difficulty in the Bitcoin network is adjusted automatically after 2,016 blocks have been mined in the network. An adjustment of difficulty upwards or downwards depends on the number of participants in the mining network and their combined ‘hashpower’.
What is The Current Difficulty Rate?
In June 2019, Bitcoin’s difficulty adjustment dropped over 9%, giving miners a higher chance to compete with less and gain more through rewards. Data shows that blocks are being produced at a faster rate than they were back in 2019. In June 2020, blocks were produced at 8 per hour.
How Profitable Is It to Mine Bitcoins?
Bitcoin mining has been around since 2009. As of this exact moment, there are 900 new bitcoins per day. 88.057% of bitcoins have been issued, with 2,507,937.5 bitcoins left to be mined. Just as all forms of investment, there is always a risk you need to pay in order to achieve high rewards. Indeed, the act of mining a bitcoin is indeed profitable – for those who can easily afford the best mining equipment and electricity costs. However, if you are a beginner or small-scale miner, don’t get set expectations too high. More often than not, the odds won’t be in your favour. If you do scale up the ladder, however, high rewards will be in your way.