Bitcoin uses “Proof-of-Work (PoW)”, a mechanism of solving problems through computer mining power in order to obtain the accounting right, and the successful completion of the mining will be rewarded with new “bitcoin”, so the computing power will have a direct correlation with the revenue.
PoW - Proof of Work Mechanism
The consensus mechanism is the core of the blockchain network, which ensures that all participants or nodes of the blockchain network agree on the current state of the distributed ledger. The Bitcoin network uses the PoW mechanism to reach consensus.
"Mining" is the use of proof-of-work mechanisms, using hardware devices with computing power to continuously compute and verify transactions, making the ledger easy to verify but difficult to tamper with, ensuring network security and synchronization across the network, and earning bitcoin fees as a reward. The operators of bitcoin mining are called "miners".
Mining is essentially a violent exhaustive process of competing for arithmetic power to calculate the fastest possible Nunce value. At the same time, mining requires a block hash with several zeros in front of it, and the number of zeros required is exponentially related to the difficulty of mining. The Bitcoin network automatically adjusts the mining difficulty for every 2016 blocks generated based on the total system arithmetic power, and the average time to generate blocks is maintained at around 10 minutes.
Bitcoin Mining Equipment
In the early days, bitcoin mining was usually conducted through the participants' basic computer equipment. However, as more participants joined the mining effort, the difficulty of mining increased. Since bitcoin mining output is directly related to the size of a node's arithmetic power, the battle for bookkeeping rights evolved into a battle for arithmetic power between nodes, and the hardware requirements used for mining increased as well.
Specifically, in the early days of Bitcoin, the total arithmetic power of Bitcoin mining was low and relatively difficult, and mining with a basic computer CPU was sufficient to meet the demand. As the price of bitcoin rose and related concepts were promoted, more and more miners joined the mining effort, and the difficulty of mining naturally rose. In 2010, CPUs were replaced by GPUs, a graphics processor released by puddinpop's CUDA Miner. GPUs have a multi-core architecture that is suitable for parallel computing and can meet a large number of computing needs.
In 2012, hardware devices dedicated to mining emerged that were about 200 times faster than the GPU mining of the time, eventually giving rise to the industry of special application integrated circuit ASIC chip manufacturing and bitcoin mining. Currently, bitcoin computing power is concentrated in the hands of several large mining pools.
Simply put, Bitcoin mining has gone through the central processing unit mining (CPU) and graphics processor mining (GPU) phases and is currently in the phase of mining via special application integrated circuits (ASICs).
Bitcoin Halving
Bitcoin’s mining yield decreases as blocks are produced, in addition to the automatically adjusting difficulty with the total computing power of the network. Every block produced at the start of the Bitcoin network was rewarded with 50 BTC. However, every time the Bitcoin network generates 210,000 blocks, the bitcoin reward for each block is cut in half.
Given a block is created every ten minutes, the Bitcoin network will halve every four years. The bitcoin mining reward will eventually be reduced to zero in 2140, and the total number of bitcoins in circulation will reach a maximum of 21 million. Miners will no longer be able to earn mining rewards for mining new blocks after that date, but will only be able to earn fees from trading users.
Disclaimer
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Crypto investment involves significant risks. Please proceed with caution. The course shall not be considered investment or financial advice.