Bitcoin is the first and most popular cryptocurrency that announced the beginning of decentralized finance in 2009. The goal of Satoshi Nakamoto was pretty clear when he published the Bitcoin whitepaper — to create a peer-to-peer electronic cash system that would enable people to communicate financially without being monitored or ripped off by centralized authorities and banks.
The timing was just right — at that point, the world was exhausted from the global crisis and bureaucratic obstacles that kept hindering cross-border business interactions. However, the general population didn’t accept the concept of decentralization immediately, and the reason behind such a reluctance was partly the fear of the unknown and partly the fact that Bitcoin didn’t come with a material representative in the real world.
Gradually, Bitcoin gained traction worldwide once people understood the power of decentralization. However, the life cycle of cryptocurrencies — from minting to distribution — has remained a source of confusion for many traders worldwide.
That’s why we’ll go through the unified mechanism for creating new coins and verifying BTC transactions with an eye on the power consumption they require.
Proof-of-Work (PoW)
Bitcoin and other altcoins pursue their quest for decentralization through the blockchain — a public ledger that is distributed to all participants and steered by automated mechanisms that replace third-party intermediaries.
Bitcoin uses the Proof-of-Work consensus mechanism with the SHA256 hashing algorithm as a key component, whereby a transaction is considered valid only when approved by all Bitcoin network participants, also known as miners. They take part in the blockchain through their computers, known as nodes.
The mining reference for this basic blockchain activity comes from mining precious metals. Just like gold, Bitcoin mining is quite difficult, but at the end of the day, it’s worth the effort because of the valuable reward. Well, Bitcoin miners do receive new bitcoins as compensation for their contribution, but they don’t put their “blood and sweat” into the process. Instead, miners compete against each other using computing power that helps them be first to verify the pending transaction. The question is why Bitcoin mining consumes so much power and where all this power goes.
How Does Bitcoin Mining Work?
The best way to understand the mining process is to track down the movement of a single Bitcoin transaction:
- To activate a BTC transaction, the user sends a request to the network to confirm their transaction.
- The transaction then goes to the blockchain memory pool (mempool), where it remains until there are enough transactions to form a single block.
- When the block is filled, it receives unique input data that is converted into a 256-bit string (64-character hash for better readability) by the cryptographic SHA-256 function. It’s of utmost importance to remember that this is a one-way function, meaning the algorithm can easily convert the content into a hash but there is no way to reverse the process and turn the output into the initially-generated form.
- A copy of the 256-bit hash is sent to the nodes, and this is where the competition begins. Because of its irreversible nature, there is no other way of finding the initial input data (called nonce) except by guessing randomly. So, miners start guessing repeatedly until they find a number that is smaller or equal to the so-called nonce.
- Under the current mining circumstances, this process takes 10 minutes on average. When the winning node finds the matching data, they send it “for review” to other nodes, and after that, the block containing your transaction is safely added to the blockchain.
- The rewarding fund of bitcoins is regulated through a process called halving. Bitcoin has a limited supply of 21 BTC units in total, and as the number of mined coins gets closer to the maximum cap, the rewards become smaller. This modification happens approximately every four years — the Bitcoin halving of 2020, for example, resulted in a block reward of 6.25 BTC units.
Why Is BTC Mining Difficult?
The PoW mechanism seems like a flawless technology that maintains the production balance of Bitcoin and, at the same time, prevents double-spending and other network irregularities. From an end-user perspective, this process has become not only environmentally unsustainable but also extremely hard for a casual enthusiast to achieve any profitable result.
If we continue with the metal-mining analogy, the “Bitcoin mine” is nowadays getting covered by huge rocks and only those with extremely powerful rigs can get close to “free bitcoins.” The thing is the more popular Bitcoin becomes, the more difficult SHA-256 equations are. This adjustment is written in the Bitcoin code as another mechanism to prevent inflation.
Hence, difficult equations require a greater number of attempts to find the solution. Each attempt is called a hash since each “shot” consists of submitting a solution for a single hash function. The network hash rate has also become a measurement unit for calculating the power of the mining equipment, i.e. how many hashes the mining hardware can produce per second (H/s), and as such, a signal for increased congestion on the Bitcoin blockchain.
The Development of Bitcoin Mining
The hardware requirements for mining Bitcoin have drastically changed over the past years. The first Bitcoin was mined from a personal computer with a regular CPU board. After Bitcoin reached a certain monetary value, miners started enhancing their computers with more powerful GPUs designed for mainly gaming purposes.
However, it’s incredible how both CPU and GPU mining became obsolete once the ASIC (application-specific integrated circuits) rigs appeared on the scene. Even though GPUs perfectly matched the PoW configuration and showed six-time greater efficiency, ASIC rigs came in form of machines designed specifically for the use of Bitcoin mining.
For illustration, a GPU-enhanced computer with NVIDIA GeForce RTX can produce 60 MH/s (60 mega hashes or 60 million hashes per second), while a Bitmain AntMiner S5, one of the most powerful ASIC rigs on today’s market, can hit up to 1 GH/s (1 Giga hash or 1 billion hashes per second).
They reshaped the entire power system of mining operations, which started changing the industry standard measurement units from hashes and KH/s (kilo hashes) per second to THs (tera hashes), PH/s (quadrillions hashes/second), and even EH/s (quintillion hashes/second).
How Many Hashes Per Bitcoin?
At this point, you’re probably wondering how many hashes are necessary for a profitable outcome. The truth is that there is no specific number, as Bitcoin mining profitability depends on multiple factors: Bitcoin’s current price, local electricity costs, and certainly, the hardware’s hash-rate efficiency. But there is a straightforward answer to How many hashes per Bitcoin? and that’s a lot, more than you’re able to count.
Fortunately, there are relevant online platforms like CryptoCompare and CoinWarz that will allow you to calculate the Bitcoin mining profitability based on the current values of the required parameters. For instance, on 4 May 2022, a mining rig with a capacity of 1 TH/s would have brought you a daily profit of 0.2906 USD. Let’s do the math by taking the Bitcoin price at that time, which was nearly $39,000 — that’s around 2.5 quadrillion hashes per second to earn 1 BTC.
Mining Pools
The Bitcoin mining profitability is variable given the fact that Bitcoin’s price can change radically within 24 hours. However, the demand for Bitcoin doesn’t seem to decrease any time soon, so the only thing we can conclude here is that solo miners are not competitive in the mining market unless they are willing to invest hundreds of thousands of dollars and compete against huge mining farms that operate on an industrial level.
As a workable solution, first-time mining enthusiasts can join a mining pool or a centralized service where miners combine their hashing power for better results. In this formation, miners are more likely to win a Bitcoin block, but the reward will be shared based on the contributed power.
This isn’t a fortune-making formula but rather a steady income since, as a solo miner, you’ll never be able to verify a new block from your computer desk or a modest ASIC gadget. Most reliable mining pools on the current Bitcoin market include Slush, F2Pool, BTC.com, and a few more. Remember that most mining pools will charge you for a membership on their platform.
A Few Words Before You Go…
Despite the limited number of BTC units and the rising mining difficulty, cryptocurrency mining is still one of the most attractive fields for earning profit from Bitcoin.
However, it all depends on your intention on the blockchain ground. Novices usually start small, so “building a mining plant” is certainly not a plan if you’ve just entered the crypto world. Joining a mining pool in such a case won’t hurt. On the contrary, it can serve as a good starting point for learning the “mining ropes.” Or, maybe you can try your hands at mining some altcoins, such as Monero (XMR), Ethereum (ETH), Litecoin (LTC), or Dogecoin (DOGE).
At the end of the day, the most secure path as a new investor is to buy some Bitcoin on a reliable crypto exchange instead of mining them yourself. Fortunately, the Canadian market can offer you plenty of trustworthy cryptocurrency exchanges like Bitbuy, Coinberry, and Binance, where you can make a one-click BTC purchase in exchange for your native currency.