Perhaps the most interesting, yet most confusing thing about Bitcoins, is the generation process called ‘mining.’ Anyone with a computer can mine Bitcoin, unlike the fiat currencies of the world that can only be printed and distributed by the government. Bitcoin is far more similar to a previous metal such as gold, since it can only be mined as opposed to printed on demand, but of course, the mining process is completely different.
What is Bitcoin Mining?
Bitcoin mining is the process of using a special software to solve mathematical problems and being issued a certain number of Bitcoins in exchange. This not only provides a smart way to issue the currency, but it also creates more of an incentive for people to mine. Without mining, Bitcoin wouldn’t be able to function, as Bitcoin miners help keep the network secure by approving transactions. Without it, the network wouldn’t be nearly as stable, safe and secure as it is. It is a process of adding transaction records to Bitcoin’s public ledger of past transactions, which is more commonly known as blockchain. This chain serves to confirm transactions to the rest of the network and lists them as having successfully taken place.
Ultimately, this process allows the Bitcoin nodes to use the blockchain technology to distinguish and allow legitimate Bitcoin transactions, and to stop any attempts at re-spending coins that may have already been spent elsewhere. Transactions are bundled into a block, and from the most recent block, the hash is taken and inserted into the new block – a hash being a large number that represents the transactions of the block, typically in the SHA-256 algorithm where Bitcoin is concerned. From here, the Proof of Work problem is solved, and when the solution is found, this new block is added to the local blockchain and becomes part of the network.
Why is it important?
Mining Bitcoin is important because it helps to secure the blockchain that Bitcoin runs on. Without mining, the transactions would never be confirmed and the currency would become unstable and unusable. The blockchain, at its essence, is a history of Bitcoin that is composed entirely of blocks that, themselves, are made up from a collection of transactions all conducted around the same time. On average, a new block is made every 10 minutes or so, but this can vary from seconds, to hours.
When mining Bitcoins, your computer will turn all of the data from the most recent block of transactions into a hash. This hash is far shorter than the original transaction data, and is composed entirely of a series of letters and numbers. However, the security of Bitcoin and its blockchain would be relatively easy to break through were hashes the only requirement. To create an extra level of security, a ‘nonce’ is created – a series of zeroes within the hash – that takes many iterations to get the correct hash format with. Each time the computer gets a wrongly formatted hash, the nonce variable is changed and the computer will try again.
Generally, this will take billions of attempts to find the correct hash, but eventually the computer will find the correct iteration, which is called ‘finding a block’. This block is then added to the blockchain, and every transaction within that block is confirmed and a Bitcoin reward is given. This incentive keeps the miners mining, which ultimately serves to keep Bitcoin usable and secure.
What is a Bitcoin Mining Farm?
A Bitcoin Mining Farm, quite simply, is a collection of mining rigs all set up in the same place. A ‘Mining Rig’ is a much more powerful version of an application-specific integrated circuit (ASIC) – a machine built specifically for mining Bitcoins. The weakest ASIC’s often only have a hashrate of 1-3 GH/s (millions of hashes per second) but in the case of Mining Farms, Mining Rigs are often of a 1 TH/s strength, but the profits made often have to go onto new rigs. With the speed of change within Bitcoin as a whole, Mining Farms often become unprofitable before too long, and so to continue to run a fully-fledged Mining operation, you’d have to keep buying new rigs and machinery regularly. But despite this risk, Mining Farms do exist, and those that run them are making profits. They often have to take into account electricity costs, but these farms are still running, and are working up and expanding with every passing day.
Of all of the Mining Farms globally, the Bitcoin mine in SanShangLiang Industrial Park on the outskirts of Ordos is the world’s largest. 400 miles from Beijing and 35 miles from the city of Baotou, the mine is just off of the highway but sits among abandoned, half-built factories that are simply shells of a once booming coal-mining industry. This Bitcoin farm, however, is as fruitful as ever and belongs to Bitmain, a Beijing-based company that not only mines, but also makes mining machines that can perform billions of calculations per second. With eight buildings filled with 25,000 machines manned by 50 Bitmain staff, the process consumes enormous amounts of electricity which can be the downfall of many a Bitcoin Mining Farm.
However, this Chinese mine is set up in an area that offers cheap electricity. The Ordos mine has been running since 2014, but was only acquired by Bitmain in 2015, and is mostly powered by coal-fired power plants. While the daily electricity bill can amount to $39,000, the number of Bitcoins being mined by this facility every day, crossed with the value of Bitcoin today, means that they are breaking even and then making a profit each day too. The workers live on-site, with dormitories and a kitchen provided for them, and with the clean, temperature controlled environment, this surreal workplace is one that is better for their health than some of the other industries of the area. The once coal-heavy location is now home to the largest Mining Farm that also makes up for 4% of Bitcoins processing power – quite the achievement for a single facility, especially with the growing popularity of the cryptocurrency as a whole.