Bitcoin mines are...

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What does a mine do and how does it make bitcoin?

A Bitcoin mine produces Bitcoins by wining the reward.  The reward is a contest run every 10 minutes, so there are 144 contests per day.  The winner receives newly minted Bitcoins (฿12.5 BTC per contest today until the next halfing in 2020) as well as all the transaction fees collected from the transactions processed for the 10-minute interval (about 2,100 transactions at combined fees ranging from ฿3-10 BTC).  Bitcoin mines receive between $30-50 Million US Dollars each day[2]. Daily, there are ฿1,800 BTC (a fixed amount – ฿12.5 BTC times 144 contests per-day) produced in newly minted Bitcoins in addition to the fees which average around ฿500 BTC.

Building a mine today requires specialist computer hardware, open-source (freely available) software, expertise in computer architecture and administration, as well as a place to build the mine and a very large amount of electrical power to run the mine.

The contest to win the reward is not just the verification of the transactions, rather it is a computationally time-consuming problem to find the nonce (an arbitrary number that can only be used once).  The first miner to complete the problem correctly wins the contest and the rewards.  A core requirement of Bitcoin is that a contest should take 10 minutes (this is the fixed, linear minting of Bitcoin).  If a miner completed the task faster, then the production of Bitcoins would be faster.  To keep the production as close to the 10-minute interval the Bitcoin mining network modifies the complexity of the computational problem.  This is known as the Difficulty.  The Difficulty increases when the contests are completed faster than 10 minutes, and decreases when the computations take longer than 10 minutes.  The Difficulty is set after every 2016 Blocks (or contests) – which is approx. every two weeks.

The Difficulty is required to keep the production of Bitcoin fixed in an world where computation speed is ever increasing.

The Bitcoin network measures computational speed in Hashes and is known as the Hashrate.  The Difficulty increases as better and faster strategies are used to compute and verify the block (win the contest).  In general terms, the Difficulty increases as more and faster miners are added to the network.

The combined processing power of all miners is known as the Global Hashrate.  The current value can be found on www.blockchain.info.  The Global Hashrate is the indicator of the global processing of all miners combined.

From Bitcoin’s inception up until a few years ago it was possible to mine Bitcoins on a conventional home computer with the software running in the background. However, as the Difficulty has become more complex, CPU based (general purpose Computer Processing Units, aka Home computer) miners gave way to GPU (Graphics Processing Unit) based miners because the Bitcoin contest calculation could be computed over 1000 times faster. Today, CPU and GPU based miners are no longer powerful enough to be a viable basis to build or profit from Bitcoin mining.

Today mines incorporate ASIC (Application Specific Integrated Circuits) that have hard-coded the Bitcoin algorithm directly into silicon chips.  This is a more sophisticated and costly enterprise that is now a requirement in all Bitcoin mining.  Today’s mines are built from specialist computers incorporating an array of ASIC processing chips.  This makes running the Bitcoin algorithm extremely fast.

So, Bitcoin mining has advanced from software running on a normal every-day computer (CPU mining – measured using the kilo-hash scale) to more specialist mining using the graphics card in a general purpose computer (GPU mining – measured using the mega-hash scale) to today’s Application Specific Integrated Circuits (ASIC mining – measured using the tera-hash scale).  A single ASIC based miner (circa $2,500 USD) today has the processing power of over 12,000 CPU miners (circa $18 Million USD).

The Third Bladetec Bitcoin Mining Company Ltd’s mine will be built from hundreds of ASIC based miners and operate at the Peta-Hash rate.

In addition to the Difficulty and the Hashrate, the third factor in the minting of Bitcoins is the Halfing Event.  The Halfing occurs every 210,000 blocks which is approximately every four years.  When Bitcoin was first launched, the reward for miners was ฿50 BTC, this halved after four years to ฿25 BTC.  The current reward is ฿12.5 BTC.  The next Halfing Event should occur around June of 2020 and at such time the reward will be ฿6.25 BTC.  The concept of Halfing creates the scarcity of Bitcoins which aids in the underpinning of their value.