Mining for beginners

What is mining? The process of emergence of new bitcoins is one of the most important aspects of the cryptocurrency industry. Why is it called mining? Many people are accustomed to the fact that “digital” and “virtual” cost nothing. After all, the files can be simply copied and used. It was Bitcoin that became the first technology that is able to break this stereotype not only for ordinary people, but also for the most staunch supporters of the free distribution of software and content. In Bitcoin, “copy protection” is built in conceptually and it is much more difficult to bypass it than to crack the protection of the program.. No matter how much you copy the wallet or block database, you will receive a copy of the same bitcoins that can only be spent once. Despite the fact that the Bitcoin client and protocol code is completely open, creating new coins is a complex and expensive process.. It is impossible to generate more bitcoins than planned by the creator of the technology. And in order to get new coins, significant investments in equipment, premises, cooling and electricity are required.. That is why Bitcoin is called “digital gold” and is depicted as gold coins. The word “mining” comes from the English “mining”, which means “mining” and came into use precisely from the analogy with gold mining. The more devices in the network that are engaged in mining, the better the Bitcoin network is protected from attacks.. The owners or operators of such devices are called “miners”. It is also not uncommon for a “miner” to refer to the computing device itself, which is necessary for computing on the Bitcoin network. Each new block includes a cryptographic signature generated on the basis of the previous one.. So the blocks interlock with each other, forming a “chain of blocks”, “blockchain” (blockchain). The chain of blocks can fork, but in the end, the branch of the blockchain that most miners work on gets confirmed. This is how the network self-regulates. Mining is the process of calculating the cryptographic signature of a block. A block in the Bitcoin network is a data array that contains information about transactions that entered the network after the creation of the previous block (for about the last 10 minutes). Bitcoin uses the SHA256 hashing algorithm widely used on the Internet.. The network participant who provided the calculation of the cryptographic signature of the block receives a reward in Bitcoin. At the same time, in order to obtain a “gold bar” in the form of a precious “generating transaction”, he needs to shovel tons of waste rock – hashes that are not suitable for the block. Thanks to a mathematical theorem from the field of cryptography called “proof of work” (Proof-of-Work, PoW), the calculation of the block depends on such a programmed parameter as complexity (difficulty). The complexity of calculations in the Bitcoin network changes every 2016 blocks (about 2 weeks at 10 minutes per block) and is set depending on the average time for which all blocks were found after the previous recalculation. But complexity is not the most important obstacle to wealth.. Every four years, the block reward is halved. At the start of the system in 2009, miners received 50 BTC for each created block, and now the reward is 25 BTC.. The next reduction in the award is expected in the first half of 2017.. The exact date cannot be calculated, as it depends on the dynamics of changes in mining difficulty. Why Bitcoin needs miners Mining is the basis of the integrity and reliability of the Bitcoin system or any other cryptocurrency. The work of miners provides all the main functions of the network: Confirmation of transactions (transactions); Protecting the network from entering false information (fake transactions and blocks); Protecting the Bitcoin network from various types of attacks; Support for the decentralization of the Bitcoin network. A transaction between two participants in the Bitcoin network must be confirmed by participation in the block. If the miner who created the block accepted it and included it in the block, the coins contained in the transaction become available for further use.. An attacker who tries to feed a fake transaction to the network will be discarded at the block formation stage. Slip a whole block onto the net? To do this, you need to have a signature generated on the basis of the previous block. If there is no signature, then it must be calculated – which means repeating the entire series of calculations that were needed for the previous previous block, and so on, up to the very first block created on January 3, 2009. That is, in order to roughly hack the network and establish your own rules in it, you need to recalculate the entire blockchain. An absurd amount of work – in fact, it is easier for an attacker not to recalculate the entire volume of calculations in the Bitcoin network again for the sake of just one block – but to join with their computing power in honest work. Fork the block chain? It is possible, but such a branch is doomed to remain alone, an orphan – orphaned, if it is not supported by ever-increasing computing power, greater than the total power of all “honest” miners, which also requires huge costs and is devoid of practical meaning. With a hardware investment of just a few hundred million dollars, you can get 51% or more of the computing power of the Bitcoin network.. This attack is called “attack 51%”. But even in this case, the triumph will be more likely a Pyrrhic victory.. An attacker will only be able to “freeze” transactions on the network or arbitrarily change payments from his own wallet, which will not bring much wealth. Decentralization, that is, independence from a single control center, is one of the key advantages of Bitcoin over traditional currencies, and it is provided precisely by miners who are dispersed around the world.. Turning off part of the computing power will not stop transactions on the network – for this you need to turn off all the miners to a single one. The concentration of capacities in the hands of large pools and data centers creates a certain threat to decentralization. But mining is spreading more and more and now there is no longer one pool that could get more than 50% of the network. And data centers are dispersed across several continents – from Norway and Greenland to Australia. Blitz history of mining The first block signatures, in the presence of free time and lack of competition, could even be calculated manually, with an ordinary pencil on paper. In 2009, a programmable calculator was quite enough for block calculations. Of course, in practice, no one did this, and mining was carried out by enthusiasts on CPUs – processors of ordinary home computers.. The era of computing on processors was quite long – almost two years. When miners ran a program that uses the central processor to calculate the signature of a block, Bitcoin cost no more than a few cents, and then no one thought about super profits. In 2011, a program for mining on the GPU (graphic processor of the video card) was developed.. It copes with these calculations much better, since top-end video cards have at their disposal from tens to hundreds of small shader processors, each of which can calculate hashes separately. Thus, it became possible to “parallelize” calculations and speed them up by several orders of magnitude. There were computers with several video cards, which were called “rig” (oil rig), and then whole farms with tens and hundreds of cards that were exclusively engaged in calculations for the Bitcoin network. It was then that the so-called “pools” appeared – sites for collective mining, and single, or “solo mining”, useful for network decentralization, became risky and impractical. This era continued for two more years.. The next step was the use of FPGA modules, and then the development of specialized ASIC chips that can only do mining, but are much faster and more economical than any video card. With the advent of ASICs, mining changed irreversibly and a “hashrate race” began, which continues to this day.. Since the beginning of 2013, mining equipment manufacturers have been on the fast track all the way in the development of microelectronics – from 130 nm Avalon I to 16 nm chips from Bitmain and Bitfury, and even more technologically advanced microcircuits are in development. What and how to mine Easy money The profitability of Bitcoin mining is falling in the same progression as the complexity of computing. Therefore, mining income can now be obtained only with very cheap electricity plus a huge number of computing devices equipped with the most modern chips and cooling systems.. On the forum, amateur miners offer a variety of industrial and homemade devices for those who want to start mining at home, and several manufacturers offer their latest developments.. It is difficult to talk about the profitability of this activity, since it has been teetering around zero for a long time and depends on the slightest movements in the course and complexity. Even more doubtful is the so-called “cloud mining”, which involves the rental of computing power for calculations in the “cloud”, or rather, in the data center of the service operator. In most cases, you pay for electricity and depreciation of equipment, in addition, all other risks fall on you.. Cloud mining services that do not charge for electricity often turn out to be pyramid schemes. However, having studied the market well, you can find quite profitable offers for home mining that can bring income comparable to the salary of an average office worker. If you want to mine Bitcoin on an industrial scale, you need a former military base or a tunnel in the Arctic, complete with meter-thick metal doors and intelligent condensing cooling systems that feed hundreds of thousands of boards with millions of chips.. This is exactly how one of the leading manufacturers of miners and the owner of a large cloud service, KnCMiner, describes their data centers.. This way you can at least keep up with your competitors. Earn by Bitcoin mining without big investments? That time is gone a few years ago. Now it is possible to make a profit on mining using processors and video cards only on alternative cryptocurrencies, that is, forks or altcoins. Alternatives After the advent of ASIC miners, numerous forks began to use devices no longer needed by Bitcoin. One of the most common alternative hashing algorithms – Scrypt – has long been a haven for video card farm owners.. But in 2014, ASIC chips appeared for him too.. By this time, a whole “zoo” of new algorithms arrived – Scrypt-N, Scrypt-Jane, X11, X13, X15, Cryptonote, Groestl, Quark and others. Many altcoins are still quite profitable to mine on PC processors or video cards. There are digital currencies that use a different theorem, it is called “proof of storage”, (Proof-of-Stake, PoS). Unlike the “proof of work” (Proof-of-Work) that the Bitcoin network uses, PoS-based currencies do not require ever-increasing computing power.. For the functioning of the blockchain, they only need wallet programs that are constantly running on users' computers, and mining occurs due to the duration of storage of coins.. Some forks are various hybrids of PoW and PoS technologies. There are also more exotic options.. For example, a new type of mining is gaining popularity, in which cryptocurrency (Burst and analogues) is charged for using space on a hard drive or other media.. This technology is called “proof of capacity” (Proof-of-Capacity, PoC). Data carriers are now booming and this business also has prospects. Such decentralized storages can be useful, for example, for cheap distributed hosting of sites or large arrays of not very valuable data, such as collections of images, photos, music or videos. The Future of Mining New, faster chips will use technologies such as optronics, photonics, superconductivity and quantum computing. Economically, bitcoin mining is most justified in Iceland, where you can get energy from geothermal sources, and cooling near the Arctic Circle is provided by nature itself. Maybe there will be mining farms in the Sahara and Tibet, where solar energy utilization will be used for computing and cooling. In the long term, a good region for mining will be the coast of the Arctic Ocean and Antarctica. Energy for calculations there can be obtained from tidal power plants, cooling the chips with outside air. And perhaps in a few years more economical types of mining, such as Proof-of-stake and Proof-of-Capacity, will prevail or new ones will be invented. Then huge farms devouring megawatts of electricity will become a thing of the past.. But the very idea of decentralized financial systems has already earned credibility and will develop regardless of how their reliability is ensured.