CRYPTOPEDIA

What is Bitcoins mining?

The process of Bitcoin mining essentially means adding new transactions to Blockchain, BTC public ledger. The major features of Bitcoin are openness and transparency, so everyone can access it. All transaction, added to Blockchain, are confirmed. Moreover, this innovative technology is used to filter legitimate transactions from illegal actions (for example, re-spending funds).

You can obtain BTC through:

1)   Buying Bitcoin on a cryptocurrency exchange, Bitcoin ATMs, Bitcoin gift cards, P2P, etc. (you can read more about it in our new article);

2) Accepting BTC for services, products, goods, clothes, etc. Some innovative services also pay salaries in Bitcoin or other cryptocurrency.

3) Bitcoin mines, which is carried out by bitcoin mining software.

Useful vocabulary

Mining is a technique of adding Bitcoin transaction records to a public ledger, where all previous transactions are stored. It is achieved through the use of computer processors.

Blockchain is a distributed public ledger, where all transactions records of each and every Bitcoin user is stored. You can not modify or delete any transaction from the system. This word consists of two parts: “block” and “chain”, which symbolize an endless number of transactions made and recorded during some particular period.

As soon as a new block is created, Bitcoin miners start a complicated process, which require a very specific knowledge. They use a complicated mathematical equation to the info in the generated block and transform in a random array of numbers and letters, which form a “hash”.

Hash is a random unique array of letters and numbers. It includes both data from a transaction block and some other data. It is worth mentioning that the hash generated from the past block kept in blockchain is also included in it. It is not hard to generate a hash from a transactions block. However, you will never know exactly what information was used for producing a new hash. All hashes are different!

Moreover, it does not matter, what data is used for making hashes – they all have the same size. So hash is a product of mining, a digital stamp. That is why it is very difficult to blackmail, deceive or scam within blockchain – everyone will notice it.

Bitcoin block reward

Miners play a very important role in the Bitcoin community: they prove all transactions and check if they are legitimate. However, miners are competitors, not friends. They keep a track on the best mining software and hardware, which are designed to mine fast and effectively. As soon as a block is stamped and a miner developed an exact hash order, he / she gets a reward.

The world-famous provider of video cards Advanced Micro Devices (AMD) intends to increase the production of its devices and thereby eliminate their shortage in the market.

According to AMD CEO Lisa Su, the current lack of the graphic  cards on the market is largely due to the inadequate production of GDDR5 and HBM2 memory used in the RX line popular among miners. As noted in AMD, investors and consumers have no reason to be concerned, as the company and its partners will continue to take measures to overcome the deficit.

During the conversation with the investors, the head of the company presented the annual report on AMD financial results, noting that the cryptocurrency mining became an important driver of the company’s revenue growth.

It is not a secret that the total number of BTC is limited to 21 000 000 USD. Currently the total number of Bitcoins mined is 17,190,766 BTC. The less Bitcoins are left, the more difficult it becomes to mine it. Moreover, there are millions of people, who mine BTC simultaneously and it gets really hard to do it. A big question is whether the reward will increase or stay the same after the number of BTC will become critically low.  The process of mining is not easy as it may seem, because you need to buy an expensive software and hardware for it.

Bitcoin Difficulty

Bitcoin is mined with an algorithm called PoW (Proof of Work). Producing PoW is rather time-consuming and has a low profitability. Proof of work is represented by a hash.

“A proof-of-work (PoW) system (or protocol, or function) is an economic measure to deter denial of service attacks and other service abuses such as spam on a network by requiring some work from the service requester, usually meaning processing time by a computer.” – Bitcoin Wiki

Bitcoin mining regulations

Bitcoin mining is one of the most widely discussed topics in the world. State authorities also consider it as a serious issue, which needs to be regulated or banned. Different country approach this issue in a different way: CIS country are considering an opportunity of officially legalizing mining. China and a number of other countries banned Bitcoin mining, because it consumes a big amount of energy. Moreover, the process of mining is very harmful for the environment. Canadian government came up with a process of green Bitcoin, which will be mined with a help of renewable sources of energy. However, some specialists believe that it is a speculation.

Bitcoin mining in Ukraine

The Verkhovna Rada was suggested to develop a legal regulation of mining and cryptocurrency separately. This was stated by Alexander Danchenko, the head of the parliamentary committee on information and communication.

“Prior to the Revolution of Dignity, Ukraine occupied 60% of the world’s mining, now, after the pressure from the security services, this share fell to 3%. I suggest to treat mining and cryptocurrencies separately, since mining is a calculation, “Danchenko said.

Bitcoin mining in Russian Federation

Mining of cryptocurrency in Russia should be conducted within the framework of the law. Tokens and Initial Coin Offerings (ICO) can also be allowed on the territory of the country. This was reported by the first deputy chairman of the Central Bank of Russia, Olga Skorobogatova.

“We believe that mining is an activity that should be conducted within the framework of clear, legitimate rules. Mining in the territory of Russia will be legalized. All these details will be disclosed in corporate documents, “she noted. At the same time Skorobogatova stressed that the Central Bank has not yet discussed the issue of how the miners will be able to exchange the extracted cryptocurrency.

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CRYPTOPEDIA


What is Bitcoins mining?

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