Like the prospectors during the California gold rush of 1849, today’s cryptocurrency miners seek gold from “them thar hills,” and this time those hills just happen to be in Wyoming.
Mining for cryptocurrencies, such as Bitcoin, Litecoin, and Dogecoin, doesn’t require a pickax and a gold pan. Instead, cryptocurrency miners earn Bitcoin by verifying Bitcoin transactions, such as buying and selling.
How is Bitcoin mined?
In a process conceived by Bitcoin’s anonymous founder, Satoshi Nakamoto, miners complete “blocks” of transactions on the blockchain, which is an electronic ledger.
Bitcoin miners verify transactions, making sure that the same coin has not been bought or sold twice. The transactions are in 1 MB (megabyte) blocks, and depending on how much information is contained within a transaction, 1 MB can contain as little as one transaction or as much as several thousand transactions.
The 1 MB block size was originally specified by Satoshi Nakamoto back in January 2009. Today, some miners believe the block size should be increased in order to accommodate more data. If that were the case, the bitcoin network could process and verify transactions more quickly than it currently does.
However, verifying 1 MB worth of transactions only makes a Bitcoin miner eligible to earn Bitcoin. A miner must also be the first to discover the solution to what is called hashing puzzles.
To solve these kinds of puzzles, a miner needs either graphics processing units (GPUs) or else Application-Specific Integrated Circuits, known as ASICs.
In a process known as “proof of work,” the miner must be the first to find a number that is less than or equal to a 64-digit hexadecimal number that is known as the “target hash”.
Our familiar number system is base 10, meaning that once we count ten numbers — 0 to 9, the next number is no longer a single digit but is a double-digit, 10. The hexadecimal numbering system uses base 16 instead of base 10. It includes the numbers 0 through 9, plus six additional numbers designated as A, B, C, D, E, and F.
A typical 64-digit hexadecimal number looks like this:
and there are literally trillions of possible numbers that are less than but close to this number.
To generate that many guesses, a miner needs a lot of computing power, which is known as having a high hash rate. A hash rate is measured in megahashes per second (MH/s), gigahashes per second (GH/s), and terahashes per second (TH/s). Mega means 106, giga means 109 and tera means 1012.
According to Investopedia as of Nov. 2020, there were around 18.5 million bitcoins currently in circulation. Since the coins first created by Nakamoto in what is known as the genesis block, every subsequent Bitcoin has been mined.
However, the ability to mine new bitcoin gets more difficult over time. In 2009, there were 21,000,000 bitcoins available to be mined. By 2012, there were only 10,500,000 available,…