What is Bitcoin Mining?
The rising popularity of Bitcoin has more people asking ‘what is Bitcoin mining?’ Let’s explore the answer to that question and more!
Bitcoin mining describes the process of creating Bitcoins by solving complex mathematical equations with high-powered computers. Bitcoin mining has tremendous rewards for those dedicated to mastering the process. Furthermore, the benefits of Bitcoin mining extend past the miner. The community as a whole benefits from increased network security and liquidity. Let’s explore the lifestyle and process associated with becoming a Bitcoin miner.
Getting Started with Bitcoin Mining
It’s important to understand Blockchain technology and Bitcoin before attempting to mine Bitcoin. Be sure to read our articles on those two subject matters. For a short answer- Blockchain technology is a secure set of digital transactions that are difficult to hack. Bitcoin is a cryptocurrency that uses the Blockchain ledger to verify, store, and secure transactions.
Bitcoin mining serves two purposes:
- Confirm transactions
- Create new Bitcoins
The Bitcoin Mining Process
- The blockchain verifies the transaction
- Transactions are grouped together to form a new block
- The most recently made block’s ‘header’ is combined with the new block and an incremental number known as the NONCE. The combination of the two creates what is known as the ‘hash number’. The hash number must always be less than the targeted number in order to solve the equation.
- The supercomputer completes the complex math problem in what is formally known as “proof of work” .
- The new block is created and added to the Blockchain!
- The Bitcoin miner receives a reward. Currently, the reward is 25 Bitcoins. However, the reward is reduced by half every 210,000 blocks created.
The Benefits of Mining Bitcoin
Now that we have a basic understanding of the Bitcoin mining process, let’s analyze why Bitcoin mining is important to the entire Bitcoin ecosystem.
As previously stated, the Bitcoin mining process unlocks a series of solvable, complex mathematical equations to mine Bitcoin. Obviously, the Bitcoin miner is incentivized by earning Bitcoin for mining. But how does the Bitcoin ecosystem benefit from mining?
The more popular Bitcoin becomes, the more miners join the network. The more miners there are, the more blocks that are created. Furthermore liquidity improves as more blocks are created. An increase in block creation leads to a lower average mining time. However, the mining difficulty increases. As the difficulty to create Bitcoin increases, the rate of block creation goes down. Mining time goes back to normal as more blocks are produced- which attracts new miners all over again. Therefore, everything comes full circle. It’s truly genius.
Furthermore, considering miners are required to approve Bitcoin transactions, the more miners there are, the more secure the Bitcoin network becomes!
The Bitcoin mining process has created a vast industry with many sustainable jobs. The growth of this industry has increased Bitcoin mining profitability for millions of technologically gifted individuals around the world.
Bitcoin Mining Profitability: A Brief Examination
News events, regulatory announcements, and comments from powerful people effect Bitcoin mining profitability. In December of 2017, cryptocurrencies, including Bitcoin, surged in value because of the announcement of the first Bitcoin futures product. This allowed traders to speculate on the price of Bitcoin on the open market. This increased interest from all over the world. Interest in Bitcoin led to many people purchasing cryptocurrencies while others sought to master the Bitcoin mining process.
Technology’s Effect on Bitcoin Mining Profitability
Bitcoin “miners” surround themselves with huge computers for a reason. Computers play an important role in the Bitcoin world. Mining computers differ from traditional home computers- they work at top speed all the time.
Prior to 2013, Bitcoin mining profitability could be achieved using a personal computer. With the emergence of ASICs- Application Specific Integrated Circuit chips- mining on a home computer became obsolete. ASICs increased the standard computing power required to solve complex math problems and create Bitcoins.
ASICs are much more expensive than personal computers. In fact, many ASICs were going for over $20,000- pushing many small-time miners out of the industry. Accordingly, startup costs pushed many small-time miners out of the industry.
The companies that create mining rigs began to compete on price as Bitcoin increased in popularity. The competition reduced the cost of mining rigs. The industry’s rising popularity has made equipment more affordable and easier to obtain.
The reduced cost of mining rigs led to a saturation of miners in the Bitcoin ecosystem. This devalued the rewards for mining Bitcoin and increased the difficulty to create Bitcoins. Essentially, reduced costs and mining saturation balanced the reward. This reiterates the genius of the Bitcoin mining process.
Calculating Bitcoin Mining Profitability
Bitcoin mining industry’s increased popularity has also increased the competition. Thus, mining power players treat it as a real business with costs, profits, and breakeven rates to consider. Many aspiring miners compute Bitcoin mining profitability through websites by using mining profitability calculators. These calculators assess costs vs. profits by calculating a variety of variables. A few of the most popular websites for Bitcoin mining calculators are CryptoCompare.com, BuyBitcoinWorldwide.com, and CoinWarz.com. Check out these websites to get a basic understanding of Bitcoin mining profitability prior to investing.
Web-based profitability calculators help Bitcoin miners determine their breakeven price and profit margin prior to investing.
How to Get Started on the Bitcoin Mining Process
There are many options to begin your own Bitcoin mining process. “Cloud Mining” and “Personal Mining” take the top spots for dependability. First, let’s discuss Personal Mining.
The cost of supercomputers and energy has decreased the popularity of personal mining. However, its surely the most profitable route if you can afford the startup costs.
How to Begin for Personal Mining
Choosing your hardware is the first step. Serious personal Bitcoin miners need a powerful ASIC miner. A lot of modern options use the same chips, but have different power suppliers. Bitcoin mining profitability is tremendously impacted by power supply.
Second hand hardware maybe an option. However, it is highly risky. It can cost you more in the long run if your not aware of how to assess their wear and tear of supercomputers.
The next choice for personal miners is to make the decision to mine alone or join a pool of collective miners. There are pros and cons to each. Being part of a group increases the likelihood of unlocking a Bitcoin, but decreases the rewards for doing so.
Hashing power is essential whether you choose personal or pool mining. In pool mining, members team up and each miner gets paid in proportion to their proof of work. If you get unlucky, you won’t have much hashing power, which can lead to months of mining without producing a single Bitcoin. Unfortunately, this is the fate for most inexperienced miners. When creating your Bitcoin mining profitability strategy, weigh the pros and cons of each.
To begin- find a software that works for you, connect it to your hardware, and add a secure wallet. For more information on personal mining software, check out this article by Blockonomi.
“Cloud Mining” is the process of sharing processing power with remote data centers in order to produce coins. This mining strategy requires a smaller investment because you don’t have to invest in hardware and you save money on electricity costs. However, cloud mining reduces Bitcoin mining profitability.
Furthermore, there are many fraudulent cloud mining contracts. Even worse- you cannot always trust reviews. There are websites that earn coins for writing fraudulent reviews. Obviously, avoiding cloud mining scams is an important factor to Bitcoin mining profitability.
Not all cloud mining companies are scams. There are many honest, straight-forward cloud mining contracts available to aspiring miners. For a thorough review of three cloud mining contracts you can trust, check out this article by TechRadar.com. To be clear- just because a cloud mining contract is honest, doesn’t mean that you will profit from the Bitcoin mining process.
The Path to Bitcoin Mining Profitability
To ensure Bitcoin mining profitability, do you research in advance and create a solid budget. There are millions of experienced miners out there willing and able to take advantage of rookies looking for a quick dollar. Thus, fully educate yourself about Bitcoin mining before investing.