Bitcoin mining is a process of creating new blocks in the system that uses the computing power of GPU, CPU or specially designed ASIC processors. Mining helps keep the blockchain complete and up to date by collecting new transactions into blocks. Each block consists of a cryptographic hash code of the previous block, creating a chain. Hence the name of the system – “blockchain”.
Bitcoin mining and reward
Since blockchain is a decentralized system, Bitcoin mining is performed on thousands of private computers and special farms all around the globe. In the process of mining, new Bitcoins are being created as a reward for the miner. Essentially, a miner earns free Bitcoin as a reward for contributed computing power.
Many people are using mining as a way to make money with Bitcoin. However, because the system regularly increases the difficulty level of mining, more and more computing power is required to mine a block successfully, and homemade BTC mining farms are becoming less and less profitable.
The probability of successful block creation by a miner is approximately equal to the ratio of miner’s computing power to the processing power of the entire network. In the case of this ratio being small, the probability of obtaining a reward even for an extended period is also insubstantial, or the award may be minimal– only a few Satoshi. Using as much computing power as possible increases the likelihood of receiving the reward.
One could say that In the process of mining a miner becomes a “Bitcoin generator” playing a significant role in Bitcoin emission.
Due to the nature of the computations performed in Bitcoin mining, the most productive result is achieved when using a GPU or a specially designed ASIC processor.
Excessive power consumption is among the weaknesses of Bitcoin Mining. Since 2013, so-called “Bitcoin factories” were being created. Bitcoin factories are specialized uninhabited enterprises staffed with thousands of ASIC-processors. The monthly income of a factory can exceed millions of dollars (several thousand bitcoins). At the beginning of 2015, even assuming that all miners use the most energy efficient ASIC processors, the total power consumption for Bitcoin mining was estimated at 1.46 terawatt-hours per year, which is equivalent to an annual expenditure of 135,000 American homes (an average level of about 10,8 MWh per year).