Breaking Down Mining: A Guide for Newbies
Updated: Mar 21, 2019
Let's talk about mining, how you can be a miner and forgetting the notion about solo mining on your beloved laptop. When talking with friends about cryptocurrencies, I'm almost always asked "So can you show me how to be a miner, I really want to make a lot of money this month?" Peeps!! It goes wayyy beyond that. So let's find out the nitty gritty.
Mining isn't what it once was; the long lost picture of a guy or gal spending 25 hours a day on their laptop hoping to hit it big, competing with only 100 other geeks. The real deal is that most of the mining today takes just a teeenie weenie bit more than a laptop. Sorry to break it to you but it takes a whole warehouse, often multiple warehouses. Many of which are in China (cheap energy) and are being supported by rows upon rows upon rows of processors each looking for the next block. Picture the evidence storage rooms of the FBI or CIA and then go with bigger thoughts.
To understand mining, it's worth understanding some key facts about Bitcoin:
The entire Bitcoin system of rules rests on top of very detailed cryptographic functions:
Hash functions, one you might have heard about, SHA-256
Since the Bitcoin network is decentralized, secure and trustworthy and is based on a self-regulated system of trust along with a complex mathematical algorithm, miners are faced with extremely difficult tasks in creating new blocks. It takes a vast amount of computational power to keep the network as a whole operating properly.
So what is mining? It's the computational process of making new Bitcoins (in each block) as well as verifying transactions in each block, thereby establishing trust in the blockchain. The goal here is to have as much computational power as possible behind each block because as this goes up, so does the level of trust. The system as a whole is designed around Bitcoin's computational system of trust. Ultimately, miners are on the path to solve the 'Proof of Work' problem for a new block while also staying on the look out for new blocks which are coming from other nodes in the network. So: solution is found, new block is added to the blockchain and everyone in the p2p network receives this transmission.
If you want a more technical explanation of how mining works, feel free to e-mail me. Ok, let's move on.
So a new block is made about every 10 minutes and after every 2,016 blocks, the mining difficulty rises, essentially to keep the number of blocks being created down. When a block is found by a miner, that miner gets a nice reward: currently 12.5 bitcoins along with several transaction fees paid out by Bitcoin users (to verify their transactions.) All of this is great so far and even better if you are a solo miner. Unfortunately, those days, as I mentioned earlier are long gone.
The big question now is who is mining all of these coins? Largely, mining pools are. Hundreds of miners join these pools and combine their hashing power, all under one account and then share the reward amongst themselves. Rewards, however, are disbursed by priority: the higher the contribution made per miner, the bigger the payout. Members do not split the profit into equal shares. (There are some mining pools that do this but that's another topic in itself.) Currently the most widely used mining hardware is ASIC - you can search Reddit for more info on ASIC mining.
This pretty much breaks down mining on the surface and hopefully you've re-imagined your vision of becoming a miner. There are some popular mining pools out there that anyone can sign up with using a laptop.