BitCoin Mining

What is BitCoin Mining:

• People send bitcoins to each other over the bitcoin network all the time, but unless someone (Data Miner's) keeps a record of all these transactions, no-one would be able to keep track of who had paid what. 
• The bitcoin network deals with this by collecting all of the transactions made during a set period into a list, called a BLOCK. 
• Now it’s data miners’ job to confirm those transactions, and write them into a general ledger (A long list of blocks, known as the 'BLOCKCHAIN).

• Thus Bitcoin mining is the process of adding transaction records to Bitcoin's public ledger of past transactions or blockchain. 
• OR Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain.
• Or Bitcoin mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle.  

• The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards.  
• The rewards, which incentivize mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.

• Anyone with access to the internet and suitable software & hardware (if you are not using pool) can participate in mining.  
• Software - 
• Standard Bitcoin Client - This enables to connect your computer to the network and enables it to interact with the bitcoin clients. (https://bitcoin.org/en/download)
• Bitcoin Mining Software  - This is what instructs the hardware to do the hard work, passing through transaction blocks for it to solve.
• Hardware - Bitcoin Mining Hardware (Three Categries)
• CPU/GPU Bitcoin Mining
• FPGA Bitcoin Mining
• ASIC Bitcoin Miners

What is BitCoin Mining Process: 

• As discussed above:
• People send bitcoins to each other over the bitcoin network all the time.
• The bitcoin network deals with this by collecting all of the transactions made during a set period into a list, called a BLOCK. 
• These transactions/blocks are then confirmed and written to a general ledger.
• This general ledger (used to explore any transaction made between any bitcoin addresses) is a long list of blocks, known as the 'blockchain'. 
• Whenever a new block of transactions is created, it is added to the blockchain, creating an increasingly lengthy list of all the transactions.
• A constantly updated copy of the block is shared with everyone who participates, so that they know what is going on.

• But this general ledger has to be trusted and ensure that blockchain stays intact, and is never tampered with... This is where the MINERS come in picture.
• Check this - Link
• It’s Miners job to record & confirm those transactions (otherwise no-one would be able to keep track of who had paid what), and write them into a general ledger (A long list of blocks, known as the 'BLOCKCHAIN).
• Process:
• When a block of transactions is created, miners put it through a process. 
• They take the information in the block, and apply a mathematical formula to it, turning it into something else. 
• That something else is a far shorter, seemingly random sequence of letters and numbers known as a HASH. 
• This hash is stored along with the block, at the end of the blockchain at that point in time.
• Note: 
• Miners don’t just use the transactions in a block to generate a hash. Some other pieces of data are used too. 
• One of these pieces of data is the hash of the last block stored in the blockchain.

• Because each block’s hash is produced using the hash of the block before it, it becomes a digital version of a wax seal. It confirms that this block – and every block after it – is legitimate.
• I.e. Because each block’s hash is used to help produce the hash of the next block in the chain, tampering with a block would also make the subsequent block’s hash wrong too. 
• That would continue all the way down the chain, throwing everything out of whack.

BitCoin Mining Competetion:

• As discussed above: Miners 'seal off’ a block by recording/creating transation and creating hash/attaching block to BlockChain (General Ledger)
• Well in this process - 
• Multiple Miners compete with each other to do this, using software written specifically to mine blocks. 
• Every time someone successfully creates a hash, they get a reward of 25 bitcoins, the blockchain is updated, and everyone on the network hears about it. 
• That’s the incentive to keep mining, and keep the transactions working.

• This hashing process is the competing factor here. Whosoever creates fast, wins the incentive.

• Proof of Work - 
• The bitcoin protocol deliberately makes  hashing process more difficult, by introducing something called ‘proof of work’.
• The bitcoin protocol won’t just accept any old hash. It demands that a block’s hash has to look a certain way; it must have a certain number of zeroes at the start. 
• Nonce:
• Miners aren’t supposed to meddle with the transaction data in a block, but they must change the data they’re using to create a different hash. 
• They do this using another, random piece of data called a ‘nonce’. This is used with the transaction data to create a hash. 
• If the hash doesn’t fit the required format, the nonce is changed, and the whole thing is hashed again. 
• It can take many attempts to find a nonce that works, and all the miners in the network are trying to do it at the same time. 
• That’s how miners earn their bitcoins.

Mining Hardware - Bitcoin Mining Hardware (Three Categries)

• By this stage, you will understand how bitcoin works, and what mining means. 
• Now you need to set up a bitcoin mining hardware and start generating some digital cash.
• There are two main things to think about h/w when choosing it:
• Hashing Rate - MHash/sec, GHash/sec, and THash/sec - Higher your hash rate,  more likely you are to solve a transaction block.
• Energy Consumption

• Three main hardware categories
• CPU/GPU Bitcoin Mining
• CPU - Least powerful category of bitcoin mining hardware is your computer.
• GPU - Enhance Bitcoin Hash Rate.  You can buy from two main vendors: ATI and Nvidia
• FPGA Bitcoin Mining (Field Programmable Gate Array)
• Is an integrated circuit designed to be configured after being built. 
• This enables a mining hardware manufacturer to buy the chips in volume, and then customize them for bitcoin mining before putting them into their own equipment.
• Range: 750 Megahashes/sec
• ASIC Bitcoin Miners (Application Specific Integrated Circuits)
• This is where the action’s really at. 
• They are specifically designed to do just one thing: mine bitcoins at mind-crushing speeds, with relatively low power consumption.
• Range 5-500 GHash/sec

Mining Software

• Depending on which equipment you choose, you will need to run software to make use of it. 
• Typically when using GPUs and FPGAs, you will need a host computer running two things: 
• Standard Bitcoin Client - This enables to connect your computer to the network and enables it to interact with the bitcoin clients. (https://bitcoin.org/en/download)
• Bitcoin Mining Software  - This is what instructs the hardware to do the hard work, passing through transaction blocks for it to solve.

Bitcoin Mining Pools

• Important ques.. anyone interested in mining cryptocurrencies faces is whether to mine SOLO or join a 'POOL'. 
• There are a multitude of reasons both for and against mining pools. 
• Pool is always good for high hash rate distribution but you have to share the benefit.
• Going solo means you won’t have to share the reward, but your odds of getting a reward are significantly decreased.
• List of Mining Pools: https://www.litecoinpool.org/pools

Ref: 

• https://www.coindesk.com/information/how-bitcoin-mining-works/
• https://www.coindesk.com/information/how-to-set-up-a-miner/
• https://www.coindesk.com/information/get-started-mining-pools/

Ref: Mining Profitability Calculator

• https://tradeblock.com/bitcoin/mining/
• http://www.bitcoinx.com/profit/

Hope this helps.

Arun Manglick