How is a Bitcoin born? Understand what cryptocurrency ‘mining’ is and how to engage in the activity

In March alone, Bitcoin mining specialists raised $1.5 billion. But the activity is not for everyone and it still raises environmental concerns

Until recently, a person who related mining activity to a bunch of “nerds” behind computers with enormous processing power would be labeled a lunatic. But that is how the activity of those who work in cryptocurrency networks, including the most famous of them, Bitcoin , became known .

Mining serves not only to validate the cryptocurrency network and keep it fraud-proof, but also to bring new units of Bitcoin and other crypto onto the market.

It is a very profitable activity. Even more in the current moment of euphoria the cryptocurrency market is going through . In March alone, mining experts raised $1.5 billion, according to The Block Research.

So much money — real and virtual — circulating has led to a shortage of microchips used in mining machines, which has become a threatening principle for the cryptocurrency network.

So many computers turned on at the same time demand enormous energy consumption, which has sparked criticism recently about the environmental impact of the activity, including from names such as billionaire Bill Gates, founder of Microsoft.

But I’m getting ahead of myself on this report. To begin with, let’s answer the main question that should have brought you to this text:

How is a Bitcoin born? Understand what cryptocurrency ‘mining’ is and how to engage in the activity

 

What is mining and how is Bitcoin born?

Mining is nothing more than solving a problem, according to André Franco , a specialist in cryptocurrencies at Empiricus. Imagine a whole network of people and computers working to solve an equation, such as x – 2 = 0. The first to reach the solution “x = 2” receives the reward for the work.

Mining is responsible for keeping the entire blockchain standing, the network of blocks that is still inviolable until today, and which has the entire history of transactions with the cryptocurrency.

When confirming the next block in the chain, the miner plays the role that is now done by a bank, by checking whether there are enough Bitcoins in one account and whether the other can receive that amount.

To do this work, the miner is paid in Bitcoins. Currently, this “salary” is 6.25 units of the cryptocurrency, plus network transaction fees. Simple, isn’t it? None of that.

Bernardo Teixeira, CEO of BitcoinTrade, a Brazilian cryptocurrency broker, gives an explanation with more technical terms on the subject. “Bitcoin mining works via a ‘proof-of-work’ SHA-256 protocol. As the solution to this problem is completely random, miners basically make trillions and trillions of trials and errors to be able to mine and validate the blocks,” he says.

Simply put

Is it still difficult to understand what the miner does? So, nothing better than alluding to the activity of extracting precious metals, such as gold.

The “Serra Pelada” of Bitcoin miners is the blockchain, the network that validates cryptocurrency transactions. Instead of a pickax, they use powerful computers capable of solving countless equations per second.

Through trial and error, just like a gold miner who chooses a place to start digging, it’s possible (or not) to be the person who will find the solution to this problem.

If you are the lucky miner to find the solution, the blockchain network itself rewards you with (digital) gold. It’s like finding a box with network transaction fees (which can vary from block to block) and 6.25 Bitcoins.

Thus, when validating that information, the miner adds a block to the blockchain and receives his reward. The other miners cannot find the solution for that block, and they go to the next one to try to find more gold and the cycle repeats itself.

How is a Bitcoin born? Understand what cryptocurrency ‘mining’ is and how to engage in the activity

Difficulty Adjustment

The resolution of blocks today takes approximately ten minutes, because some transactions need another miner to validate and the network needs to process several orders and validations at the same time, which makes it difficult to use them for day-to-day transactions, which are today practically instant with reais or dollars.

The example of x = 2 I gave above is an easy problem solving that doesn’t even require a calculator to solve. But getting to the solution of some of the Navier-Stokes equations, considered to be the most difficult in the world, may take more time. For this, you need a computer with great processing power, called computational power or hash .

Between the x = 2 equation and a Navier-Stokes, the blockchain system adjusts the difficulty so that blocks are not resolved too quickly and ensure network security. Which brings us to an important point: it’s virtually impossible to hack the Bitcoin network.

Can I mine alone?

Interested in launching yourself as a miner in Serra da Blockchain? First of all, it is necessary to explain a little what computational power and mining hashrate are .

The processing power of a computer refers to the amount of problems it can solve per second. This division of computational power by time is called the hashrate , or mining fee .

It can be measured in bytes per second, but CPUs used for mining have a hashrate of a few terabytes per second (T/sec). That’s trillions of hashes per second, equivalent to trillions of trials and errors per second to find the blockchain solution.

The higher the hashrate , that is, the more people looking to solve the block problem, the greater the blockchain security and, consequently, the more the miner can gain from transaction fees. To have a better chance of success, miners gather in groups called mining pools.

Although mining cryptocurrencies at home is not impossible, you will face competition that makes the activity practically unfeasible.

“It would be the same as you, with a pickaxe, trying to take a nugget of gold from Serra Pelada and another person, with a tractor, doing the same”, compares Rocelo Lopes, a specialist in blockchain and crypto economics.

How is a Bitcoin born? Understand what cryptocurrency ‘mining’ is and how to engage in the activity

The pools mining

You and your powerful pickaxe may not be able to compete with a tractor. Now, if you get together with other diggers, some with jackhammers, some with trucks, some with tractors, it changes the picture.

The leading manufacturer of mining-specific computers, with a hashrate of several terabytes per second, is Bitmain. Processors can cost as much as US$8,300 (approximately R$45,650) and, by yourself, you would need some of them to have a chance of finding Bitcoins.

Mining pools are groups of miners that come together, with powerful computers, to solve the blockchain block. Thus, the chances of finding the solution of the block go up, and the division by computer and processing capacity ( hashrate ) of the miner is done.

These pools are generally concentrated in countries with two main characteristics: cold weather and cheap energy. This means that if you still have the desire to pursue this activity, you will probably have to move to another country.

Energy has to be cheap because the Bitcoin network is kept alive 24 hours a day, and miners don’t stop for that long. Cold places, on the other hand, are used to keep the machines cool without much effort from a super-powered air conditioner.

Computers can reach 80°C when turned on, which can compromise the integrity of some components. The ideal temperature to stay turned on is between 35 ºC and 40 ºC, which requires a lot of effort from the air conditioner to maintain this temperature and, consequently, a greater expenditure of energy.

But places like Paraguay, where energy is very cheap, manage to maintain mining pools. The main pools are located in China and Russia, but there are also mining “farms” spread across most of the world, according to the Cambridge Bitcoin Electricity Consumption Index report.

I spoke for this article with a miner of Ethereum — one of the main cryptocurrencies on the market — who preferred to identify himself only as Berna Cripto. He is pursuing his degree in computer engineering and tells a little about the challenges of life in mining.

Berna sold its heavy-duty motorcycle that was stopped during the pandemic and, in January of this year, bought all the equipment necessary for mining, at a cost of approximately R$ 26,000. For him, the high cost of the initial investment is unattractive, and he advises:

“[Mining] is a high-risk investment. In addition to having to know a lot about electrical, you need to have a knowledge of how to assemble your RIG [the set of all mining equipment, which includes motherboard, video card, processor, memory, etc.].”

For those who want to enter the crypto world, Bern recommends the direct purchase of cryptocurrencies. “Don’t tell your uncle that he has R$ 50 thousand saved for him to start mining, he needs all the knowledge parallel to that”, he concludes.

How is a Bitcoin born? Understand what cryptocurrency ‘mining’ is and how to engage in the activity

weather problem

One of the problems with cryptocurrency is that to keep the network active, a huge amount of electrical energy is needed. Cambridge Bitcoin Electricity Consumption Index studies report that the entire Bitcoin network consumes more energy per year than the whole of Argentina.

The real problem is not only in consumption, but the source of electrical energy used by miners. In China, for example, the main raw material for generation is coal, which accounts for almost a quarter of the energy produced in the country, which places the Asian giant as responsible for 11% of the planet’s carbon dioxide (CO2).

With the increasing demand for cryptocurrency mining, this activity could become one of the great villains of the environment, as was pointed out by billionaire Bill Gates .

Berna Cripto comments that 10% of everything he earns from mining goes to pay the electricity bill. “If I make BRL 4,000, BRL 4,500 per month, the electricity bill comes to BRL 400 or BRL 450. That’s because it’s still very much worth mining”, he comments.

How can I join a pool?

Taking all this into account, you can join a group to mine cryptocurrencies. As the largest and most successful pools are located in China, some of them are in Mandarin, but most are in English.

First, you need to download mining software. The most famous are CGminer and BFGminer, but there are other smaller ones, available on the platform of the websites of these softwares or on GitHub, the main social network for programmers.

The leading role of mining is measured by the pool’s hashrate , and you can check it out by clicking here or find out about the top five:

F2Pool
poolin
Antpool
Binance Pool
ViaBTC

No registration or anything is required to enter a mining pool. As the pool finds solutions to the block’s problems, the miner receives a reward proportional to his percentage of computational power offered in the pool.

And when Bitcoin ends?

Like gold, Bitcoin is a finite network that could end at some point. More precisely, the calculations stipulate that the Bitcoin mine will deplete in 2140, reaching the final quantity of 21 million units.

Even so, the prospect is that, by this time, the currency will be so expensive that it will pay off for the miner to continue mining Bitcoin because transaction fees would remain high, even without receiving the cryptocurrency as payment.

Alternatives

If you’ve been frustrated that it’s not possible to mine Bitcoins at home, here’s a break: you can mine other coins at home. Searching for other cryptocurrencies can be less, and the difficulty of solving their blocks tends to be easier.

Thus, with a home computer it is possible to do the mining process, although it is less attractive than Bitcoin.

How is a Bitcoin born? Understand what cryptocurrency ‘mining’ is and how to engage in the activity

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