Why is Bitcoin mined? and other cryptocurrencies are not?

Author: Dongdong, source: Daily Coin Research

Bitcoin miners do not need to wear hard hats, do not need to go deep into underground pits to mine Bitcoin, **Bitcoin is a virtual cryptocurrency that operates on the blockchain, and Bitcoin mining is also carried out on the blockchain network using equipment that can provide computing power (computing power). **

Bitcoin miners are completely different from traditional miners, Bitcoin miners don’t even need to go out, they can automatically mine after setting up a mining machine and putting it in an air-conditioned room, in addition to maintaining equipment operation and paying electricity bills, the miners themselves can almost lie flat and no longer need to pay for labor mining.

How many people are mining?Where is it located?

The so-called bitcoin mining is to participate in the operation of becoming a bitcoin network node.

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According to the data provided by the Bitnodes website, there are currently more than 16,000 reachable nodes on the Bitcoin network, distributed in nearly 100 countries, and the top three countries with the most reachable nodes are the United States, Germany, and France.

To include unreachable nodes, there are more than 48,000 nodes in 139 countries worldwide.

Among them, there are also people in Taiwan mining Bitcoin, and the number of reachable and unreachable nodes in Taiwan:

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Bitcoin reachable nodes vs. non-reachable nodes

According to Bitnodes, those that can send and receive messages from other parties are called reachable nodes, and those that can only send out but cannot receive them are called unreachable nodes. There are many possibilities that you may not be able to receive messages, such as when the node is behind a network firewall, or if the maximum connection limit has been reached, or if the message is being updated synchronously.

In contrast, reachable nodes provide a more complete set of node functions and are an integral part of Bitcoin’s operation, but unreachable nodes are also part of the Bitcoin network and still have their importance.

Further subdivision nodes can be further divided into several different types:

Distinguished by the degree of data storage: full nodes are responsible for storing the complete information of the entire blockchain, while light nodes only store part of the information. Differentiated by tasks: Mining nodes are responsible for packaging new transactions into new blocks and putting them on the chain, and validators are responsible for verifying that the content of the latest packaged blocks is correct.

Why is Bitcoin mined?

Mining is simply a way of distributing bitcoins, and before the total issuance limit is reached, new bitcoins will be continuously produced.

Two features of Bitcoin:

Is a virtual currency without a physical entity Operates in a decentralized manner on a public blockchain

The main reason why the Bitcoin network is a decentralized blockchain is a decentralized cryptocurrency, and in order to maintain the operation of the Bitcoin network in a decentralized situation, the original way is mining.

Bitcoin Core Features & Value: Decentralization

Bitcoin is a cryptocurrency operating on the blockchain, first of all, a brief explanation of the operation of the blockchain: the blockchain is like a cloud shared ledger, the special thing is that the transaction is packaged and encrypted into a block, after verification, on the chain, one block after another, closely connected with each other through encryption technology, so it is called the blockchain;

Bitcoin is the so-called public chain in the blockchain, a blockchain that is open to everyone to participate, one of the characteristics of the public chain is decentralization, there is no clear owner, the vernacular explanation is that if Bitcoin is a company, this company does not have a boss salary, but the operation of Bitcoin needs a node to package and verify the block, if there is no boss salary, how to attract nodes to participate in the operation of the Bitcoin network?

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Schematic diagram of the operation of the blockchain

Bitcoin Mining Principle

Bitcoin was designed with a total cap of 21 million at the beginning, with no pre-mining, and was issued from scratch through block rewards.

As mentioned earlier, how to attract nodes to participate without salary? At the beginning, it is to attract people to join through the block reward, and every time a block is packaged, a block reward will be issued to the node responsible for packaging the block, the block reward is initially 50 bitcoins per block, and then the block reward will be halved every four years, and now after the third halving, the block reward has been reduced to 6.25 bitcoins per block, and next year (2024) will usher in the fourth halving at the end of April and early May, and the block reward will be reduced to 3.125 bitcoins.

Bitcoin mining is the process of participating in the operation of nodes and striving for block rewards. **

Bitcoin produces a new block about every 10 minutes, and 10 minutes is the average time, which means that there will only be more than 100 new blocks in a day, but the number of nodes far exceeds this number, how to distribute it? How to decide who can pack a new block and receive the block reward?

Bitcoin takes the form of POW (Proof of Work), the program will come up with a math problem, the problem is difficult to calculate for a long time, all those who want to participate in mining hurry up to calculate, and the first to calculate the correct answer will get the right to package the block.

Others who did not win this right are responsible for verification and prepare for the next question.

Bitcoin mining is to some extent to spell mathematical calculations and probability, of course, this is all calculated by computers, so you need to invest in better equipment and prepare higher computing power to have a chance.

**Bitcoin provides block rewards through mining to attract people to participate as nodes, thereby maintaining the security and operation of the entire Bitcoin network, and the more nodes participate, the more Bitcoin can be decentralized. **

Bitcoin mining difficulty will be dynamically adjusted

As the number of people involved in mining increases, the computing power invested in solving the problem increases, and in order to maintain an average of 10 minutes to produce a piece, it is necessary to increase the difficulty of the problem. If there are fewer people mining and the computing power invested in solving the problem decreases, the difficulty of the problem must be reduced.

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Bitcoin Difficulty Curve, Source BTC.com

The number of people involved in bitcoin mining has increased, and with the advancement of technology and the more advanced equipment invested, the difficulty of bitcoin mining has continued to soar compared to the past.

Frequently Asked Questions about Bitcoin Mining

Can a mobile phone or laptop be mined?

According to the latest research by Coinmetrics, the three mining machines produced by Bitmain alone have accounted for 76% of the computing power of the entire Bitcoin network, the first Antminer S19j Pro accounts for 34.3% of the computing power, and the second S19 accounts for 28.1%, and most of the computing power is provided by professional mining machines.

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Most miners will also cooperate to form mining pools to mine together, and according to BTC.com data, the total of the top five mining pools has exceeded 85% of the computing power of the entire Bitcoin network.

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In comparison, the computing power of ordinary mobile phones or computers is too low, and now mining must be done with professional mining machines to have a chance, and it is almost impossible to mine with ordinary computers with mobile phones.

But if it’s the super lucky chosen one, it’s not necessarily, and occasionally there will be super lucky nano miners who mine with a relatively small amount of computing power, just like winning the Bitcoin Mining Lotto. **

Latest Bitcoin Mining News: A Single Miner Gets 6.25 BTC Reward Using Only 1PH Hashrate

Bitcoin mining seems to be unenvironmentally friendly?

With continuous high-frequency computing, the mining machines involved in bitcoin mining are indeed very power-consuming, and they are very hot, and in order to cool down the equipment and keep it running well, they usually have to turn on a strong air conditioner, and overall bitcoin mining is very power-intensive.
Electricity consumption is a fact, environmental protection or not is not necessarily, we must look at the source of energy used, according to foreign analysis, more than half of the energy used in Bitcoin mining comes from green energy.

Can Bitcoin mining make money?**

Calculate the problem to win the opportunity to package the block and distribute the block reward, referred to as mining mining, but because Bitcoin mining is too competitive and extremely difficult, the cost of organizing a mining machine + the cost of maintaining the operation of the mining machine + the cost of electricity, if Bitcoin continues to rise sharply, it is okay, and you may lose money when the price is not good.

If mining is too profitable, more people will invest, the price of graphics cards will soar (miners will use a large number of graphics cards), and the cost of building mining rigs will increase.

Taken together, unless you can get a relatively cheap graphics card or have a relatively low electricity bill, Bitcoin mining is not easy to make at this stage, and it is becoming more and more large-scale development, such as mining farms and mining pools, which can help reduce costs.

What should I do if I run out of bitcoin mining?

The maximum number of bitcoins is 21 million, and it is expected to be mined in 2140, after which there will be no more bitcoin block rewards.

However, the income of nodes is not only block rewards, all transactions on the Bitcoin network need to be processed and packaged by nodes, and transactions will be charged fees. When the block reward is exhausted, there are still transaction fees that can be returned to the node as a reward for participation.

As long as there is enough Bitcoin adoption and there is sufficient transaction volume on the Bitcoin network, the fees charged are enough to maintain enough nodes to participate.

Why don’t other cryptocurrencies be mined?**

Like Bitcoin, POW (Proof-of-Work) blockchains can also be mined, such as Bitcoin Cash BCH, Litecoin LTC, mainly because of environmental protection and transaction speed considerations, now more and more blockchains adopt POS (Proof-of-Stake) mechanism, or some late-developing new blockchains also have updated consensus mechanisms, because the consensus mechanism is different, other cryptocurrencies do not necessarily adopt mining methods to determine the distribution of block rewards.

The second brother ETH also used to be a POW mechanism and also had to be mined, but it completed the transformation last year and has been transformed into a POS mechanism, changing to distribute block rewards through staking, and Ether mining has gone into history.

Staking can also be understood as some form of alternative mining, which is still an attempt to win a block reward, unlike Bitcoin mining: it is no longer necessary to invest computing power, but to lock up the cryptocurrency. **

Is Bitcoin hashrate related to price?

The more computing power is invested, the more difficult it is to mine Bitcoin, and the cost of mining will increase. Theoretically, when the price of bitcoin is higher and more profitable for miners, they are more willing to invest resources, buy more mining machines and open more mining farms, and the computing power continues to rise.

When the price of Bitcoin falls, theoretically some miners will start to lose money, and after losing money, they should shut down the miners, reduce the computing power, adjust the mining difficulty, and find a balance again.

But let’s take a look at the comparison of the two trends, although the computing power occasionally falls, but on the whole, the trend continues to rise, and there is no obvious connection with the price trend.

The previous thinking is only theoretical, in fact, there is a problem of fixed and variable costs, although the overall input cost is calculated to lose money in mining, but after all, the mining machines are bought, and they may not be able to sell them, as long as the income from continuous mining is still higher than the electricity bill, it will continue, or start to look for cheaper sources of electricity costs. Some people who can’t afford to leave the market and decide to sell the mining machine at a low price, but it may be profitable for those who buy a cheap mining machine.

Perhaps coupled with the mentality that the price of Bitcoin will recover sooner or later, mining is not cost-effective at the moment, and it is a good investment to buy coins as long as the variable cost of mining is lower than the direct market price.

Under the combination of various factors, although the price of Bitcoin fluctuates up and down, the fluctuation of computing power is relatively small, and the continuous upward trend is more obvious.

Summary: A simpler way to participate than mining: buy bitcoin directly

Mining was a way to obtain a large amount of bitcoin at a lower cost in the past when it was not so competitive, but now, it has become a practice with high pre-installation and maintenance costs, and the capital conditions required to become a bitcoin miner are getting higher and higher, and it is difficult for petty bourgeoisie to participate.