With Bitcoins, the process of creating the currency is called mining. Bitcoin miners use specialized software and hardware to verify bitcoin transactions and to solve complex math problems and are compensated by a certain number of bitcoins in exchange. This is how bitcoin currency is issued and anyone can mine bitcoins. We can use mining to create or earn our own bitcoins. Presently, a successful miner is rewarded with 25 bitcoins for every new block that is created roughly for every 10 minutes. This mutually agreed value will halve after every 210,000 blocks are added to the chain.
Bitcoin mining involves verifying and adding transaction records to Bitcoin's public ledger of past transactions or blockchain. The blockchain is used to confirm transactions as having taken place to the rest of the network.
Bitcoin nodes use the blockchain to legitimate or validate genuine Bitcoin transactions and prevent double spending of bitcoins, that is, stop re-spend of coins that have already been spent elsewhere.
Bitcoin mining is willfully designed to be resource-intensive and difficult so that the number of blocks mined each day by miners remains moderate and steady. Individual blocks are also required to contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes every time they receive a block. Bitcoin employs the hashcash proof-of-work function for its working.
The primary goal of mining is to facilitate Bitcoin nodes to reach a secure, tamper-proof consensus. Mining is also the mechanism used to introduce Bitcoins into the bitcoin eco system: Miners earn (if any) transaction fees as well as a "reward or bounty" of newly created bitcoins.
This both serves the purpose of distributing new coins as well as motivating people to secure the system.
A proof of work is a piece of data which was resource-intensive and time-consuming to produce so as to satisfy certain requirements.
Producing a proof of work is usually a random process with low probability, and a lot of trial and error is required before a valid proof of work is generated. Bitcoin uses the Hashcash type of proof of work.
Additionally, the miner is awarded the transaction fees paid by users. The fee is a sort of incentive for the miners to include the transaction in their block. In the future, the fees will make up a significant percentage of mining income.
There are two main types of mining: Solo and Pool.
Solo mining is done alone or on your own. With the configuration of a normal desktop or laptop, it would take years to earn actual bitcoins as mining requires enormous computing power.
The second method we can use is pool mining. It involves signing up for an account with any one of the different pooling sites. Using their software and hardware, these sites pool the mining efforts of a lot of people's computers. Every person in the pool gets small number of bitcoins as his share as a reward. For individuals, pooling is preferable over solo mining.
BitMinter is a bitcoin mining pool that aims to make it easy for anyone to make bitcoins. It is one of the oldest pools. Since its opening in 2011, over 450000 people have registered accounts with it. In the earlier period, CPUs and GPUs were used for bitcoin mining. Now we need to have specialized Application Specific Integrated Circuits (in short ASIC) machines for bitcoin mining. The speed of these machines is given by their hash rate which is presently of the order of tera hashes/second or T H/s.
ASICs took over mining in 2013. Mining just one bitcoin with an ordinary PC would take quite lot of time. You will need a 1 TH/s or faster ASIC machine to start a small mining operation at your home.
Below is the process to use BitMinter for mining −
Step 1 − First, we signup with BitMinter site using our google or yahoo mail accounts and then confirm our mail id by clicking on the link in our mail received from BitMinter.
Step 2 − We set up a Worker account with a worker name and worker password besides the username created when creating BitMinter account. We link the Bitminter Client to the worker account.
Step 3 − Then we log in by filling up account details as shown below.
Step 4 − After this by opening the BitMinter Client application, we get following console as shown below −
Step 5 − We press the Engine Start button to start mining. We have to ensure that our machine clocks a hashrate speed of atleast 25 million hashes/second or 25 M H/s.
Step 6 − We will also need to change a few settings regarding automation. We can leave our machine on all day and all night.
Step 7 − We can go to Settings > Options to change these settings. Automated devices are a list of devices that you set so that they start automatically when the software starts.
Step 8 − We will let our machine run at night increasing the prospect of making more number of bitcoins.
Mining secures the transactions by finding random strings that make the block to hash to a value with lot of leading zeros. The more the zeros, the more difficult it is to decrypt. Mining bitcoins does not mean finding new bitcoins; these are awarded by the network for completing validation of all outstanding transactions of a block and solving some complex math puzzle.
The best way to earn bitcoins is to find and execute work paying in bitcoins. We can purchase the bitcoins as well. Lastly, if we want to earn them the hard way, we should go for mining. To mine bitcoins, we can buy some cheap hardware on sites: ebay.