While the phrase ‘Bitcoin mining’ invokes images of heavy equipment to dig in the earth, that’s not how Bitcoin mining works. Bitcoins are mined by solving complex mathematical algorithms that are verified on a series of nodes on the Bitcoin network. Mining nodes are given a reward per block for solving these complicated equations.
What is a node?
A bitcoin node is a computer that runs the bitcoin software and contains the entire bitcoin blockchain. Anyone can download the software and set up a bitcoin node, as long as a certain port is left open. The entire bitcoin network takes up about 145GB of hard drive space. Bitcoin nodes spread transactions out across the network.
Mining nodes group outstanding transactions into blocks to be added to the bitcoin blockchain. These mining nodes solve a complex mathematical equation to add new data to the blockchain. These nodes need to find a number that is within a specific range when combined with the block data and hash function.
How do nodes solve the puzzle?
Mining nodes take many millions of guesses at random to find the actual answer. The hash function makes it impossible to predict the correct output. Miners plug in mystery numbers to find the correct answer.
The first miner with the resulting hash in the desired range announces the answer to the rest of the network. Other mining nodes stop work on that block and move on to the next. As a reward for finding the right hash range, the mining node is rewarded an amount of bitcoin.
What are mining rewards?
Bitcoin mining rewards are subject to change as the network progresses. The current reward for solving a mining chain is 12.5 BTC. That’s about $123,000 at the current BTC/USD exchange rate. The value of the reward fluctuates wildly with the value of bitcoin itself.
How difficult is it to mine bitcoin?
The costs of running a mining node are considerable. That is why many small-time Bitcoin miners pool their resources into a bitcoin mining pool. Having powerful hardware with more processors means you have a greater chance of solving Bitcoin mining blocks. Running these machines consumes large amounts of electricity, which can be cost-prohibitive for most consumers.