Unlike fiat money, such as USD, that is physically printed, cryptocurrencies can’t be “produced” in the same manner. Different cryptos have various development processes, but the most popular ones like Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC) are created through the process of mining new coins.
The mining process is facilitated by the computing power of the miner’s computers, and the metrics behind the mining process are called hashes. Hashes are used to measure hashing power. Let’s take a look at how Bitcoin mining works and what the exact role of hashes is, along with the exact number of hashes required to mine a single BTC.
Bitcoin is the first and most popular cryptocurrency in the world. When it was launched back in 2009 by Satoshi Nakamoto, the promise of decentralized digital cash based on innovative blockchain technology was really revolutionary compared to traditional money and bank transfers.
Bitcoin had the first blockchain in the world and paved the way for all future altcoins that tried to copy the best features of the Bitcoin network. Basically, a blockchain is a type of decentralized, distributed public ledger that keeps all the transactions on the network. Transactions are kept and processed in blocks of data that are set chronologically from first to last.
Every transaction of BTC needs to be processed through the blockchain. In order to verify a transaction, multiple miners need to validate that a certain transfer is indeed legitimate.
Bitcoin mining is a key aspect of BTC transactions and the production of new coins. The total amount of BTC is capped to 21 million coins total. Each new coin has to be mined within network nodes, which are actually mining rigs, powerful miner computers that verify transactions by solving complex mathematical tasks.
Every transaction has to be verified by several independent Bitcoin miners in order to get processed to its final destination. This is called the proof-of-work (PoW) algorithm, which makes sure that no transfer is a double-spending scam. For their work in verifying every transaction, miners are rewarded with miner fees, small sums of BTC added to every transaction as an incentive for miners to verify your transfer as soon as possible.
Once a BTC block is filled with 1MB of data and all of the transactions within that block get verified, a new block is added to the blockchain, and the miners that verified the transactions get rewarded with freshly minted BTC.
This is how new bitcoins are created, thanks to the computational power of mining rigs and their hash rates.
Cryptocurrency Mining Pools
Mining BTC is a very complex process and it requires a lot of computing power. The mining award of new coins only goes to the miner that successfully hashed the solution to the related mathematical task. This means that even though several miners participate in the verification of transfer data, only the one that solves the puzzle gets rewarded.
Because of this, mining pools were invented in which thousands of miners participate and join their computing power to solve these puzzles together. They join their individual hashing power and then share the block rewards. This method of mining while sharing power with other miners is far more profitable than mining with your rig independently, because stronger mining rigs such as ASIC miner machines (application-specific integrated circuit) will always get the block reward before weaker rigs due to their higher processing power.
Mining pools are a more democratic, community-oriented type of mining endeavor that is profitable even for miners that have less expensive rigs. These pools have a combined network hash rate.
Mining rigs measure their power in hashes per second or on a larger scale, in megahashes, gigahashes, petahashes, or terahashes, which represent the speed at which a mining rig is capable of solving mathematical problems that contribute to the verification of transactions and the creation of new Bitcoin blocks. It takes 2,7 quadrillion hashes to generate a single Bitcoin.
This is an enormous figure, so it is no wonder that miners are joining each other in mining pools to combine their computing power and mine Bitcoin faster. The complex computations miners are solving require large power consumption and you should definitely take into account the electricity cost and the mining difficulty of BTC when planning to invest money in mining rigs.
When you are preparing to buy mining hardware, the most important aspect is the GPU because the graphics card is responsible for hashing BTC. You should check a hash power ranking website such as Hashrates.com to see the profitability of GPUs before starting any mining operations.
A Few Words Before You Go…
Bitcoins can’t be created without the work of miners and the hash rate of their mining rigs is one of the most important components for minting new coins. These are some of the basics of how Bitcoin hash rates contribute to the verification of BTC transfers and the smooth operation of the Bitcoin blockchain.