How Bitcoin Mining Works?
Many miners enjoy the process as they help the entire Bitcoin network confirm transactions and promote network trustworthiness.
As mining becomes more sophisticated, some worry about the purported environmental impact of the sometimes massive amounts of electricity needed to mine.
Others argue concerns about energy use are overblown as consumption is not equivalent to emissions of carbon. Still, some claim Bitcoin’s massive potential impact as an alternate to fiat currency makes any energy consumption a useful tradeoff.
It’s also important to remember many studies about Bitcoin mining and electricity consumption rely on data that is self-reported by mining pools or go off of assumptions about electricity sources.
Mining Pools
Mining pools are a popular strategy since it’s essentially impossible for a miner with one rig to successfully mine a single block. Many Bitcoin miners choose to pool their resources as part of a mining pool to split rewards in a proportional manner.
The best Bitcoin mining pools will effectively divide work by assigning more difficult tasks to miners with a higher hash rate, and distributing less challenging ones to smaller miners. Prospective miners should do research on a pool’s distribution method, payment, payout schedule (some of the best Bitcoin mines pay daily), hash rates, and any applicable fees.
Miners also need to keep the Bitcoin halving dates in mind, as these events slash the mining reward in half. The next halving is set to occur in March 2024.
Hash Rate
Successful Bitcoin miners need to have a high hash rate, which is measured in GH/S (gigahashes per second) and TH/S (terahashes per second). Essentially, the hash rate is the speed of mining, which means miners who have better equipment stand a better chance of profiting.
The hash rate also hinges on a miner’s setup. For example, the Antminer S19 has a 95 TH/s hash rate. The Antminer S19 Pro sits at 110 TH/s.
Bitcoin Mining Profitability
Bitcoin mining profitability depends on a wide range of factors, which is why prospective miners should carry out good research based on their equipment set up and mining strategy.
Right now, the current block reward is set at 6.25 BTC. While each Bitcoin block takes about 10 minutes to mine, countless miners across the world are competing for each block reward that lessens each time after a Bitcoin halving event that occurs about every four years since the Bitcoin’s invention.
What Determines How Long It Takes To Mine One Bitcoin?
It’s not really possible to mine Bitcoin on a cell phone or pursue so-called ‘free Bitcoin mining opportunities,’ especially since Bitcoin is always sold through various exchanges and platforms. Typical laptops or desktops, and even gaming systems, are not equipped for Bitcoin mining.
As a result, the best Bitcoin mining hardware will be specialized equipment that has a strong balance between price, hash rate, and power consumption.
It’s very difficult for a solo miner to have a high enough hash rate to make a profit with Bitcoin mining. As a result, many smaller miners choose to collaborate with others within a mining pool.
Overall, mining is a competitive process and the time needed to mine one Bitcoin hinges on the hash rate. There are a few online calculators where prospective miners can research how long it would take to mine one Bitcoin based on their electricity supply and hash rate.
Mining only increases as more miners join the network, which means the computational power needed also grows. Bitcoin mining difficulty changes every 2,016 blocks (typically about every two weeks). Mining difficulty adjusts based on the number of new miners and miner efficiency in the last mining cycle.
However, mining difficulty will slide downward if computing power is removed from Bitcoin’s mining network. As difficulty determines the average time between blocks, it’s a direct determinant of profitability.
About 900 Bitcoins are available to be mined each day based on the 10-minute Bitcoin block mine time. During Q1 2022, Bitcoin’s hash rate ranged from between 180 to 200 EH/s. 16 mining pools managed to collect 13,233 block rewards during the three-month period.
At block 742,932, the Bitcoin difficulty rate was 29.57 T.
As of late June 2022, there are about 1,191,175 Bitcoins left to be mined.
After every Bitcoin has been mined, revenue for miners will entirely hinge on transaction fees. Many believe the price of Bitcoin will adjust to the absence of new coins coming into circulation and rise in value. Those looking to buy will have to deal directly with sellers instead of trying to mine on their own.
Right now, the last Bitcoin is set to be mined in the year 2140. However, even after all Bitcoins are mined, much less than the total supply of 21 million will circulate. Some estimates predict as much as 20% of all mined Bitcoin are ‘lost’ inaccessible wallets.
Traditionally, Bitcoin’s price has always jumped after a halving event, though this is not a hard rule and often does not occur immediately (typically in 6-12 months, as past data shows). The price often rises as Bitcoin attracts attention due to the halving event and since the coin’s supply is further limited as some miners will transition away after seeing their rewards slashed.
Bitcoin mining calculators make it easy for prospective miners to input the hash rate of their mining equipment, electricity costs, pool fees, and other details to see an estimate of how much they can profit based on their setup.
Bitcoin mining has changed a lot in the coin’s lifespan. Once a simple hobby for crypto enthusiasts, Bitcoin mining has transformed into an enterprise for those looking to profit. Back in 2009, some of the first Bitcoin miners relied on typical CPUs to mine Bitcoin to collect a 50 BTC per block reward. Mining difficulty was low enough that some miners could collect about $5 per day with just a few computers.
By October 2010, code for Bitcoin mining with GPUs was released. As mining difficulty slowly rose, equipment like field-programmable gate arrays (FPGAs) and application-specific integrated circuits (ASICs) transformed Bitcoin mining from a hobby to an industry.
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Reviewed and Fact Checked by Eugene Abungana , Investment Analyst, Financial Analyst, and Institutional Trader