Bitcoin Mining – Video 4

Hello, this is video 4 for the module on Bitcoin Mining Since Bitcoin is a decentralized peer-to-peer system, it requires the support of miners and full nodes to keep it running

If miners decided to shut down their operations, then Bitcoin would cease to exist! The cryptocurrency would likely become worthless Miners are essential to create the decentralized system that makes Bitcoin a revolutionary technology Bitcoin represents a future where individuals can have complete control over their own money without having to trust any 3rd party, like a bank, in the process Instead, we trust in the community, in math, and in the extreme security of the blockchain itself That said, we can’t expect people to just run full nodes and become miners from the goodness of their hearts

Running a full node costs money and mining Bitcoin costs even more! If people weren’t rewarded for their efforts, the system simply wouldn’t work That’s why Bitcoin was created around a fine-tuned incentive model This model is the driving economic force that supports the entire Bitcoin network and is one of the most fascinating aspects of it The more people who support the system, the more it can grow, and the more money that can be made by investors These investors can be located anywhere in the world

So, what are the incentives for people to run full nodes and mine Bitcoin? The biggest one, as you could imagine, is money When a miner wins a mining round and adds a new block to the Bitcoin ledger, they are rewarded with… a block reward In 2018 that reward is 125 Bitcoins, which is around $100,000 assuming the price per bitcoin is around $8,000 They also receive all transaction fees associated with the transactions in that block

One important thing to remember, while simple, is that miners are rewarded with bitcoin But to buy ASIC chips, pay energy bills and rent warehouses to hold mining rigs, all those costs are in a regular currency! If you’re in the US, those costs are in dollars In China, these costs are in their currency, the yuan

And as we’ve mentioned, the bitcoin price, compared to dollars or yuan, is volatile (meaning it changes drastically all the time) So miners have the tricky aspect of earning bitcoin, then in some cases selling those bitcoin for dollars or something else so that they can pay their bills and keep mining! Now, everybody likes to make money and we all need money to survive Naturally, a new system that provides a framework to make money from their own homes will attract people to it So let’s take a moment to think back to the humble beginnings of Bitcoin, where people could easily mine coins from the GPUs in their home computers By rewarding these early miners with Bitcoins, they became incentivized to increase the value of a Bitcoin and spread the idea

Once Bitcoin gained significant value, other people began to take notice More people entered the system to start mining as well This continued to snowball into the situation we have today This resulted in competition to find the cheapest energy and most efficient and powerful computer chip for hashing But… with all these costs and complications and volatility, what happens if mining becomes unprofitable? If the difficulty of solving the proof of work algorithm keeps increasing exponentially, won’t miners just give up, causing the bitcoin network (and price) to collapse? Well, bitcoin’s ecosystem runs on a delicate balance

If some miners do leave the system, then it would actually make the mining puzzle easier to solve And if that happens, it would entice some miners back in! So there is a constant push and pull, and many smart and determined people are behind these mining operations trying to make the numbers work One additional perk that miners get, is the benefit of running a full node Recall that running a full node is the only way to be completely in control of your private keys and your transactions over the network Full nodes offer a higher level of security than lightweight nodes

Full nodes can also cast a vote in rule changes to the bitcoin network When it comes to contributing toward the future of Bitcoin, running a full node is the best way to support the network As we’ve said many times, Bitcoin has captured the attention of the world and scores of other cryptocurrencies have come along to replicate and build on the original, elegant mining system created by Satoshi Nakamoto

Source: Youtube