“The beginnings of bitcoin ‘mining’ are crudely akin to the 1848 California Gold Rush,” explains cryptocurrency expert, Kim St Martin of Blocksource Capital. “The big difference of course, is that this time around, the treasure is virtual, and the miners are powerful computers with the ability to do complicated and random calculations — or, if you prefer, the miners are people who own these said computers.”
Essentially, the process of acquiring cryptocurrency is called mining because like natural resources hidden in the earth’s crust, the number of bitcoins available worldwide is in limited and elusive supply, and just like old-fashioned mining, it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.
To achieve this incredible, virtual digging feat, a bitcoin miner must have access to powerful computer hardware connected to a network. This network connection is known as a node, and through it, essential information is relayed. The prospective miner must download and run a bitcoin program. Through the node, the miner must then puzzle out complex mathematical problems, which are grouped in blocks and, once solved, added to a sequence called a blockchain.
Simply put, the puzzle consists in finding a number which, when combined with the data in the block, produces a result within a certain range. It is neither easy nor straightforward, and requires random guessing, with mechanisms in place making the prediction of any output impossible.
The mathematical puzzle solved, fresh bitcoins are generated and awarded to the miner, which feels very much like discovering a bit of gold. The node relays this discovery, along with who found it and the answer to the puzzle, to other nodes in the network, which will in turn spread the details of the initial transaction nodes in their respective circle, stretching the network so that in the end, the entire web of nodes is in the know.
As a result, the more miners involved, the faster word of newly minted bitcoins gets around.
However, a miner’s job does not end there. He or she must also employ their computer to verify transactions and prevent fraud. Hence, the more miners there are, the faster transaction verifications and the more secure. This contribute to the elimination of having to deal with a trusted middleman, as explained in my blockchain article.
Also, miners receive a fee for verifying a transaction, meaning an active miner gets paid twice — once for verifying the transactions and again when they successfully generate new bitcoins.
This elaborate and virtual way of mining cryptocurrency was invented by Satoshi Nakamoto. He established that the number of bitcoins mined each time must remain constant, no matter how many miners follow the rush. This adds to the challenge, and the more miners join the network, the more difficult the exploitation becomes.
“The outcome is simply mindboggling,” says Kim St Martin. “If in 2009 you could mine 200 bitcoins with your personal computer at home, now it would take your years to mine just 1!”
Hence the invention of ASIC miners, ultra-powerful super computers built especially for mining bitcoins. However, the number of miners has continued to explode, making it incredibly difficult to be a successful lone miner…
The field continues to evolve with opportunities abound. Therefore, before digging deep, knowing where to invest your energy, who to consult, how the bitcoin program works, and how miners collaborate is key to finding your Eldorado somewhere in the horizon.