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How is Bitcoin Created?

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When computers successfully add a block to the blockchain, they are rewarded with cryptocurrency. Earlier we discussed how the amount of bitcoin produced every 10 minutes cuts in half every four years. At the time of writing, computers receive 12.5 bitcoin, or approximately $48,625 USD, for each block that they add to the blockchain.

If the tune of $48,625 sounds enticing, be warned that the process of adding blocks to the blockchain, what the cryptocurrency world calls "mining," is not easy. In fact, the odds of solving one of these problems on the Bitcoin network are about one in seven trillion (12 zeros). To put that number in perspective, the odds of winning the jackpot lottery are one in 13 million. To solve complex math problems at those odds, computers must run programs that cost them significant amounts of power, energy, and money.

Similar to winning the lottery, solving hashes essentially comes down to chance but there are ways to increase your odds of winning in both contests. With bitcoin, arriving at the right answer before another miner has almost everything to do with how fast your computer can produce hashes. Just a decade ago, bitcoin mining could be performed competitively on normal desktop computers.

Over time, however, miners realized that graphics cards commonly used for video games were more effective at mining than desktops and graphics processing units (GPU) came to dominate the game. In 2013, bitcoin miners began to use computers designed specifically for mining cryptocurrency as efficiently as possible, called Application-Specific Integrated Circuits (ASIC). These can run from $500 to the tens of thousands.

Today, bitcoin mining is so competitive that it can only be done profitably with the most up-to-date ASICs. When using desktop computers, GPUs, or older models of ASICs, the cost of energy consumption actually exceeds the revenue generated. Even with the newest unit at your disposal, one computer is rarely enough to compete with what miners call "mining pools."

A mining pool is a group of miners who combine their computing power and split the mined bitcoin between participants. A disproportionately large number of blocks are mined by pools rather than by individual miners. In July 2017, mining pools and companies represented roughly 80% to 90% of the computing power on the bitcoin network.

In the real world, the power from the millions of computers mining on the bitcoin network is close to what Denmark consumes annually. All of that energy costs money and according to a recent study from research company Elite Fixtures, the cost of mining a single bitcoin varies drastically by location, from just $531 to a staggering $26,170. Based on average utility costs in the United States, that figure is closer to $4,758.
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