How are bitcoins created?

The Bitcoin mining process

Bitcoin mining, and by extension any crypto mining that follows the Bitcoin core protocol, is the process of issuing new bitcoin units by the "miners" or computers integrated with their blockchain where the transactions of creating and sending BTC units of this cryptocurrency are recorded.
Fuente: es.crypto-economy.com

Logically, the concept of cryptocurrency mining, particularly bitcoin, is an analogy to mineral extraction in mines, since when its algorithm is used to create them, there is an increasing level of difficulty in completing the blocks of its blockchain and thus the miners receive a compensation in that particular crypto as a reward for doing that work of "extraction" or emission. This concept is called Proof of Work (PoW). Pow is therefore, the consensus in which the BTC mining is based to generate new BTC units.

The important thing about this concept is that it is a consensus used by all the nodes or miners that constitute the BTC mining network (this applies to other cryptocurrency derived from the Bitcoin blockchain), so that all the blocks issued have a proof of work to show that were made according to the corresponding algorithm, and that such proof has to be validated and confirmed unanimously by all the other nodes or computers integrated with the blockchain.

Proof of Work (PoW)" is the generation consensus of new crypto units (in the BTC and another crypto protocol) to be able to validate that issue and therefore be credited to the miners in their corresponding cryto wallet upon completion of the validated work. It is a mathematical-logical process and not done at random or by action of a central authority

IT IS THE DIGITAL MONEY PROGRAMMED AND DEMOCRATIZED.

This mining process is like a competition between the nodes or miners, to complete each block and receive the reward assigned to that block. It is similar to a “gold rush”, when the Midwest miners are in a race to discover gold veins or sift the river sands in order to take their share of the reward. The simile may be very appropriate considering that the BTC is being considered "Digital Gold" or a "Reserve of Value" and because there is more or less difficulty in obtaining it. In fact, when the time passes by, it is more difficult to generate the next block since each block contains the information of the previous one plus a new one that has to be mathematically calculated by a "miner".

It is normal to think that in order to mine bitcoins or other related cryptos you must have special equipment (Hardware) and programs (Software). Well, CPU processors must have ASIC devices and the corresponding software must use a type of encryption called SHA-256. So the encryption method to mine the BTC is called SHA-256, which is widely used by many software programs to encrypt files and are easy to find.

Basically an ASIC processor is nothing more than a specific hardware whose unique function is to perform encryption operations with the SHA-256 algorithm in a fast and dedicated way and with less consumption than using an ordinary computer

Today, it is impossible to mine BTC with normal computers (CPUs) and graphics cards (GPUs) as it was at the beginning of bitcoin mining process, due to the increased level of difficulty to generate new blocks of the BTC blockchain. The main disadvantage of these ASIC equipment is its high price and delays in their supply, in addition to the fact that they become obsolete in a short period of time.

The difficulty in the mining process

This is a measure to know how much it costs to find the codes of each block following the blockchain algorithm of BTC in particular.

In the case of Bitcoin, a block must be mined in an average of approximately 10 minutes. And so that the block can't be mined any faster, the difficulty level is reset at every moment so that this mining time per block is stabilized. This readjustment of difficulty occurs approximately when about 2016 blocks are completed in about two weeks. This results in a new difficulty level for the BTC consensus PoW.

The difficulty is adjusted according to the computation power that there is in the network connected to the blockchain all over the world, so this difficulty can be less or more according to how many computers are generating blocks in the world. The computing power of mining or "Hashrate" is measured by hashes per second (HpS), being a hash an alphanumeric code generated according to an algorithm and in a logical-mathematical way and that is an essential part of a blockchain.

What are Mining Pools?

Source: delitosfinancieros.org

The Mining Pools are a group of miners or computers working in a network (connected to each other) to share their computing power and be able to calculate the hashes of the block before others and take the reward associated with each block. They are many CPUs (Processing Units) processing the data together as quickly as possible in a race to get the reward before anyone else.

Source: blockchain.com

In the diagram and table above you can see the percentages and the amount of blocks generated by each mining pool in the world, being these ones the most significant. This is an estimation of its mining power given the blocks that are assigned and validated to each one, as you can also see in the table. Most of the mined blocks fall into the category of "Unknown" because their origin could not be determined. These statistics refer to the last 48 hours from the time of this article.

Regarding the distribution of the Hashrate or Mining Power by countries, it is no secret that the leading country in this industry is China with a Hashrate between 60 and 70%, followed by Iceland, Georgia, Sweden, Norway, Bulgaria, USA, Germany and Russia. Below is the Bitcoins Mining ranking of the top 10 countries with their percentage of block mining.

Source: miningpools.com

It is interesting to notice the enormous distance that China has from its competitors being the undisputed world leader in BTC mining, however it is also worth noting that in the second place is a country like Iceland with a population that exceeds 360,000 inhabitants in contrast to the first that has a population of more than 1.4 billion people. Georgia is another small country with a population of 3.76 million which is in the third place.

The reason for the enormous development of bitcoin mining in countries as little as Iceland and Georgia, are the electrical costs and in particular in Iceland the low temperatures save costs of cooling hardware equipment, so many companies have been installed on Icelandic territory to undertake their projects of bitcoin or other cryptocurrency mining.

A key question the industry is wondering is: is it worth mining bitcoins given the increasing difficulty of the process? The answer is yes, because despite this difficulty and the successive halvings (see article on BTC halvings) that halve the rewards for mining the successive blocks, the prediction of a higher value for bitcoin given the constant increase in demand and the progressive decrease in supply, leads us to think that it is and will be profitable for a long time to mine BTC and there is always the chance of mining other cryptocurrencies with the same source code such as Bitcoin Cash, Bitcoin SV or Litecoin.

Comments