What is a hash?
A hash is a cryptographic mathematical function that converts any message or data input into a fixed-length code. Think of it as an encryption technique where messages are transferred mathematically into a sequence of numbers and letters of a fixed length.
The output has set length to make it impossible to estimate the size of the input. For example, the hash length for the word "Hi" would be equal to the hash length of the entire text of the Harry Potter book.
These hash functions are immutable, meaning that it is impossible to return the hash to its original input. The same input will always produce the same sequence of letters and numbers. For example, the hash of "hi" will be the same code each time. Each code generated is also completely unique, meaning that it is impossible to produce the same hash with two different inputs.
In the case of bitcoin, the blockchain uses the Secure Hash algorithm 256 or SHA 256 to generate an output 256 bits or 64 characters long, regardless of the size of the input.
How profitable is bitcoin mining?
For each new block added to the blockchain, the protocol – a set of rules programmed into bitcoin – issues a certain amount of newly minted coins to the successful miner. This block reward system doubles as a distribution mechanism for bitcoin.
As part of program measures initiated by Satoshi Nakamoto to continually reduce the number of bitcoins issued over time, the coins given to miners are lost approximately every four years, or 210,000, in a process known as the "bitcoin halving". blocks are reduced. In 2009, the block reward was 50 BTC. In 2013 this figure was reduced to 25 BTC. The most recent halving occurred in 2020, which saw the block reward drop from 12.5 BTC to 6.25 BTC.
Note that bitcoin has a maximum supply limit of 21 million, and we already have 18.7 million coins in circulation. Block rewards will no longer be distributed after 21 million BTC is released to the market. Once this happens, miners will only be able to earn rewards from bitcoin transaction fees.
Even with this combination of the two revenue sources, not every miner makes a profit. To meet the needs, a miner's earnings must exceed the amount spent on electricity and the purchase and maintenance of mining rigs. Also, as mining difficulty increases, large mining operations are forced to expand or upgrade their equipment to maintain a competitive edge. For most average miners who cannot invest in expensive equipment, there is an opportunity for them to combine their resources with other miners around the world. . Each miner agrees to share the reward according to the contribution of each miner. These networks of miners are called "mining pools".
bitcoin mining difficulty
One important thing to know about bitcoin is that when Satoshi Nakamoto created the protocol, he programmed a target block search time of 10 minutes. This means that it should take about 10 minutes for a miner to successfully generate the winning code to discover the next block.
So how does the network ensure that new blocks are discovered every 10 minutes?
The bitcoin protocol has the ability to automatically increase or decrease the complexity of the mining process, depending on how quickly or slowly blocks are being mined.
Every two weeks, the bitcoin protocol automatically adjusts the target hash to make it harder or easier for miners to find blocks. If they are taking too long (more than 10 minutes) the difficulty will adjust downwards; In less than 10 minutes, it will adjust upwards. More specifically, the protocol will increase or decrease the number of zeros on the front. This may not sound like much, but adding just one zero to the target hash makes the code quite hard to beat, and vice versa.
The 2021 crackdown on mining activities in China caused bitcoin's network to experience the biggest drop in history. The remaining bitcoin miners thereafter reported a significant increase in mining revenue.
Through this system, the bitcoin protocol is able to keep the block discovery time as close to 10 minutes as possible. You can track the mining difficulty of bitcoin here.
While actively participating in the bitcoin network can be a highly rewarding venture, the power and hardware requirements often limit its profitability – especially for miners with limited resources.
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