How are Bitcoins Mined?

Inside Iceland’s Massive Bitcoin Mine , Tech Vision

Bitcoin mining is the process of making computer hardware do mathematical calculations for the Bitcoin network to confirm transactions and increase security. As a reward for their services, Bitcoin miners can collect transaction fees for the transactions they confirm, along with newly created bitcoins. Mining is a specialized and competitive market where the rewards are divided up according to how much calculation is done. Not all Bitcoin users do Bitcoin mining, and it is not an easy way to make money.(https://bitcoin.org/en/vocabulary#mining)

Step 0, the preliminary step for mining, is downloading the entire Bitcoin blockchain.
This allows us to know the history so that we can verify future transactions.
Step 1, the next step, is to verify transactions, which we fill up our block with valid transactions.
Step 2, create the block using the given transactions, and all necessary metadata, such as time,
version, and target.
Step 3, find the proof-of-work, aka a valid nonce that solves the partial preimage hash
puzzle.
Step 4, broadcast your block if you have not seen any competitor blocks yet.
Step 5, if your block gets included in the longest chain: profit! (Blockchain at Berkeley)

What is Bitcoin mining?

When a user creates a new Bitcoin transaction, they need to wait for other network users (nodes) to verify and confirm its validity. Miners are responsible for collecting new, pending transactions and grouping them into a candidate block (a new block that is yet to be validated).

The goal of a miner is to find a valid block hash for their candidate block. A block hash is a string of numbers and letters that functions as a unique ID for each block. Here’s an example of a block hash:

0000000000000000000b39e10cb246407aa676b43bdc6229a1536bd1d1643679

In order to create a new block hash, the miner needs to gather the block hash of the previous block, their candidate block’s data, a nonce, and submit it all through a hash function.However, the miner must find a nonce that – combined with all the data – will generate a block hash that begins with a certain amount of zeros. The amount of zeros changes according to the mining difficulty. A valid block hash proves that the miner did the necessary work to validate their candidate block (hence Proof of Work).After gathering the pending transactions and creating their candidate block, the nonce is the only thing that a miner can change, and that’s what mining rigs do. In an intensive process of trial and error, mining machines keep changing the nonce and hashing the combined data several times until they find a solution to that block (i.e., a hash that starts with a certain amount of zeros).

As soon as a miner finds a valid hash, they can validate their candidate block and collect the bitcoin rewards. This is also the moment that the blockchain transactions included in that block go from pending to confirmed.(https://academy.binance.com/en/articles/how-to-mine-bitcoin)

How much a Bitcoin miner earns

Each new block provides the respective miner a block reward, which consists of newly generated bitcoins (block subsidy) plus transaction fees. Since the block reward is almost entirely made of the block subsidy, most people refer to it as the block reward (without accounting for the fees).When it comes to Bitcoin, the block subsidy started at 50 BTC in 2009 and is being reduced in half every 210,000 blocks (roughly four years). These halving events caused the mining reward to be reduced to 25 BTC in 2012, then to 12.5 BTC in 2016, and finally to 6.25 BTC in 2020. The next halving event is expected to occur in 2024. As of May 2021, the block reward is giving miners roughly $300,000 per block.Still, there are many factors to consider when evaluating mining equipment and profitability. The speed at which a mining rig can produce random nonces and test them is an important metric to check. This figure is known as the hash rate and is vital to the success of a Bitcoin miner. The greater the hash rate, the faster you’ll be able to test these random inputs.

Another important metric is the energy consumption of a mining rig. If you spend more money on electricity than the value earned mining, profitability goes out of the window.(https://academy.binance.com/en/articles/how-to-mine-bitcoin)

Binance Academy, What is cryptocurrency mining?

What Is a Mining Pool?

A mining pool is a joint group of cryptocurrency miners who combine their computational resources over a network to strengthen the probability of finding a block or otherwise successfully mining for cryptocurrency.

KEY TAKEAWAYS

Cryptocurrency mining pools are groups of miners who share their computational resources.
Mining pools utilize these combined resources to strengthen the probability of finding a block or otherwise successfully mining for cryptocurrency.
If the mining pool is successful and receives a reward, that reward is divided among participants in the pool.

How a Mining Pool Works

Individually, participants in a mining pool contribute their processing power toward the effort of finding a block. If the pool is successful in these efforts, they receive a reward, typically in the form of the associated cryptocurrency.

Rewards are usually divided between the individuals who contributed, according to the proportion of each individual’s processing power or work relative to the whole group. In some cases, individual miners must show proof of work in order to receive their rewards.

Rewards are usually split among the miners based on the agreed terms and on their respective contributions to the mining activity.

Anyone who wants to make a profit through cryptocurrency mining has the choice to either go solo with their own dedicated devices or to join a mining pool where multiple miners and their devices combine to enhance their hashing output. For example, attaching six mining devices that each offers 335 megahashes per second (MH/s) can generate a cumulative 2 gigahashes of mining power, thereby leading to faster processing of the hash function.(https://www.investopedia.com/terms/m/mining-pool.asp)

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