Fundamentals of Bitcoin Mining

Snapshot

• Bitcoin Mining Components
• Pre and Post ASIC

Bitcoin mining is the process of verifying transactions on the Bitcoin network by the miners in exchange for rewards. The transactions verified by the miners help in keeping the Bitcoin network safe. Miners, while mining Bitcoin is at a profit if the price of mining Bitcoin is less than the rewards received. 

Bitcoin Mining Components

In the earlier days, before the introduction of Bitcoin mining software, in 2013, Bitcoin mining was carried out on personal computers. Post the introduction of Bitcoin mining software, ASIC (application-specific integrated circuit) chips, the capability of Bitcoin mining increased up to 100 billion times. The new mining software made the use of personal computers to mine bitcoins completely inefficient and obsolete. Though personnel computers can still be used to mine Bitcoin, there is no doubt that it wouldn’t be profitable.     

The reason is the setup on which mining is based. Miners are competing with one another to solve the hash problems as fast as possible, so any equipment having slow computational power like personal computers will be at a complete disadvantage. They will stand no chance in solving the problems first and receive any rewards. When personal computers were used, the difficulty in mining Bitcoin was in-line with the Bitcoin prices. In new machines, there are new issues – cost to obtain and run the equipment and their unavailability. 

Pre and Post ASIC

Pre ASIC, when personal computers were used to mine Bitcoins, miners were able to make profits. There are several reasons due to which back then, even with personal computers miners still made a profit. First, there was no cost associated with equipment, as personal computers used by the miners, were already owned by them. A small change in settings, on their personal computers, allowed them to mine Bitcoins. Secondly, this was the time when no mining centers or advanced technology was used by miners. The competition was between individual miners, who used personal computers. It was the time when all the miners had an equal chance of mining the Bitcoin first. There could be a difference in the electricity cost required by the miners based on their geographical region, but this never discouraged them from mining. 

Post ASIC, the entire landscape of mining changed. Personal computers were replaced by powerful mining machines. Individuals were now competing against these powerful mining machines that had high computational power. Even the mining profits were getting reduced as the cost associated with mining increased. The equipment used for mining became costlier, even the energy used for mining increased, resulting in high energy costs and the continued difficulty of mining.              

Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing. 

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