Bitcoin mining is the process of creating, or rather discovering, new bitcoins. The discovery is done by solving a complex mathematical puzzle that allows miners to verify and record transactions in the Bitcoin public ledger called the blockchain.
The first ever block of Bitcoin, called the genesis block, was mined in 2009 by an anonymous miner. The puzzle that needed to be solved was a 64-digit hexadecimal number, which is known as a hash.
Today, the puzzles are a lot more complex, with hashes that are 256-bit numbers. In order to find a solution for the current puzzle, miners need to try billions of different possible nonces until they find one that works.
The nonce is a 32-bit number that is essentially random and is used only once. When a miner finds a solution, they broadcast it to the network and everyone else starts working on the next puzzle.
The solution to the previous puzzle is what confirms all of the transactions in the current block, so it needs to be difficult to find but easy to verify.
The difficulty of the puzzle adjusts every 2,016 blocks, or approximately every two weeks. The reason for this is so that on average one block will be found every ten minutes.
If the difficulty were always the same, it would take less time to find blocks at some times and more at others – this would make Bitcoin less predictable and therefore less useful as a currency.
At the time of writing, the difficulty is 16,716,277,226,256 and there are 12,525,908 total bitcoins in circulation. This means that there are about 740,000 bitcoins mined every day.
The average home computer is not powerful enough to mine for bitcoin on its own as it would simply take too long to find a block. However, there are specialised computers that have been designed specifically for mining and can do it much faster and more efficiently.
These are called ASICs (Application-Specific Integrated Circuits).
ASICs are expensive though and they use a lot of electricity so they’re not really practical for most people. There are also companies that will let you rent out their ASICs so you can mine without having to buy your own – although this still isn’t cheap.
If you want to mine at home but don’t want to spend money on an ASIC then you can use your computer’s CPU or GPU (Graphics Processing Unit). This will be slower than using an ASIC but it won’t cost anything apart from your electricity bill.
Mining pools are groUPS of miners that work together in order to increase their chances of finding a block. When one miner in the pool finds a block, they get a reward and then everyone in the pool gets a share of that reward based on how much work they did (measured in hashes).
Mining pools are popular because they increase your chances of finding a block and getting paid for it. However, they do come with some risks as if the pool finds a block then everyone gets paid but if someone finds a block on their own then they get all of the rewards.
This means that if you’re solo mining then you have potential UPSide but also potential downside – whereas if you’re part of a pool then your rewards will be more predictable but you won’t make as much if you find a block yourself.
The bottom line is that mining for bitcoin at home is still possible but it’s not as profitable as it used to be and it requires expensive hardware that most people don’t have access to. If you want to mine then your best bet is probably joining a pool so you can share rewards (and risks) with other miners.