Getting rich by mining block erupters used for bitcoin mining is as simple as turning on your computer, right? Photo: Bitcoin can be mined by users who solve complex equations. You can buy bitcoins with fiat currencies — legal tender backed by the issuing government, like Australian dollars — through online exchanges, or you can create brand new bitcoins in a process known as mining.
So how does the mining process work? The underlying technology that makes cryptocurrencies such as bitcoin possible is what is known as the “blockchain”. The blockchain is essentially a public ledger of all the transactions ever made in the currency. It keeps a record of which user owns what coins. When a transaction is made it is added to the end of the blockchain and confirmed using a series of complex computations by the computers of other users who are on that currency’s network. Those users are then rewarded with new bitcoins for letting their computers do the work.
The most recent transactions made on the network are bundled up into a transaction “block”, which is finalised roughly every 10 minutes. Once a computer solves the block’s complex equations and finds a valid hash key it is added to the blockchain, verifying bitcoin transactions between users, while at the same time rewarding the miner with new bitcoins. It can take a while for miners to reap rewards, as only the first user to solve the block by finding one of a number of valid hash keys is rewarded with bitcoins. During the early days of bitcoin in 2010-11, a common household computer would have been powerful enough to mine for dozens of new coins using its CPU or GPU. But that is not the case today.
If a lot of people are connected to the network to mine for bitcoins, the difficulty of solving a block increases. This is known as the hash rate. Similarly, it decreases when fewer people are seeking new bitcoins. The number of bitcoins rewarded also adjusts, with an end result that means every four years only half the amount of coins created in the previous four years can be made. Recently, the invention of specialised computers used solely for mining has dramatically increased the difficulty of obtaining bitcoin. 7 and can perform the needed computations hundreds of times faster than a standard home computer.