Everyone has heard about bitcoin mining before, especially since the bitcoin value reached records level. However, there is still some ambiguity, and most people don’t know a lot except for that it is a cryptocurrency.
In this article, we are going to go over all the details of bitcoin mining to make sure that you have a solid understanding of how bitcoin operates and why bitcoin remains popular and contested to this day.
What Is Bitcoin?
Bitcoin refers to a decentralized computational process where new bitcoins are created for each block and where transactions are confirmed securely. Mining is the process of adding transaction records to the bitcoins public ledger; the process of adding transaction records is called the blockchain.
This record exists so that every single transaction can be confirmed, and every individual user of the network can access this ledger. Blockchain is used to separate actual sales and identify the attempts of spending money that has already been spent somewhere else.
What Is Bitcoin Mining?
What bitcoin miners do is that miners are serving the bitcoin community by confirming each transaction and making sure all the records are legitimate. The miners are paid for their efforts through bitcoins, every time a new block is sealed off; a miner gets a reward.
Collecting cryptocurrency can be best explained as “mining.” While there are other ways through which you can buy bitcoins, some people are more incentivized to mine bitcoins with the prospect of being rewarded with valuable bitcoin tokens.
You can even earn bitcoins by playing video games or by publishing blogs that pay consumers in cryptocurrency. You can also exchange other forms of cryptocurrencies by using fiat currency.
The responsibilities of bitcoin mining are spread around the world, and therefore the bitcoin currency is a decentralized form of money, and it is a currency that doesn’t require a central bank or government to oversee its regulation.
How Does Bitcoin Mining Work?
Bitcoin mining is a cumbersome and complicated process; it takes heavy lifting from the mining chips themselves and also needs boatloads of electricity, powerful cooling, and a secure electrical connection. And even after you’ve done the tasks correctly, the reward isn’t guaranteed. Therefore the people who are considering entering into bitcoin mining should think about their decision carefully.
Bitcoin mining doesn’t involve a physical act of digging; instead, bitcoins can be best understood as a form of digital tokens that don’t require explosive excavation or planning streams, but they do have their ways of prospecting and recovery.
Prospective miners download and run bespoke mining software. This software has many different mining options, and through this, they often join a pool of other miners doing the same things. The software compiles all the recent bitcoin mining transactions into blocks and then counter checks and proves their validity by calculating proof of work.
The hardware has to take a huge number of guesses at set integers until they are able to guess correctly. When bitcoin was created, desktop CPUs were the best choice for miners, and as the bitcoin became popular, there was now a new need to secure the network and also to work towards improving the mining process.
Miners then started using high-end graphics to be able to counter this need. The GPUs were much more quickly and much more efficient when it came to bitcoin mining. The GPU allowed for a 50 to 100 times increase in mining power along with less electricity being consumed.
Today bitcoin mining is carried out by application-specific integrated circuit (ASIC) hardware. This hardware is a chip that has been repurposed and is only able to perform mining only. The repurposed chip cannot perform other tasks.
The bitcoin mining process is an intense process that gets increasingly difficult as more and more miners attempt to create the next block in the chain. The increased competition is one of the reasons why people join pools and also why the AISC hardware is currently the only popular type of equipment available.
The individual miner or a pool that is the first to create the proof of work for a block is rewarded the transaction fees and sometimes a subsidy of bitcoin. The new bitcoin is a generation of the mining, and they will continue to come up as further blocks are closed, and all 21 million have been mined.
Mining as a process is complicated and challenging for many people, and it can be impossible to complete a block before anyone else, which is why most miners form pools. The reward from pools is comparatively less, but it is generally more comfortable for them to get a bonus while working in teams.
Miners work as bitcoins auditors, and they continuously check each type of transaction to make sure that no purchase was made twice. Digital currency carries the risk that a holder could make a copy of the original token and send that copy to a merchant while keeping the original with himself.
What Do You Need To Become A Successful Bitcoin Miner?
The path to becoming a bitcoin miner is anything but easy. You will need a system that can perform a large number of calculations each second. You will also need a fast internet connection and a suitable power supply to be able to mine as many bitcoins as you can.
You will also need to be very lucky. You may be able to complete a single block, but the reward (if there is any) is for the person that submits the proof first.
Below I’ve talked about some of the crucial things that you need to consider before going into the bitcoin mining business.
1. Hash rate
Bitcoin mining is sophisticated and with that complexity, it becomes more and more essential to invest in the right kind of hardware. Almost all the bitcoin miners use the same system that is equally fast. If you plan to enter the industry with your regular computer system, then you probably won’t be able to make as much of a profit.
Before investing in any equipment for bitcoin mining, it is essential to consider the hash rate. Bitcoin mining does not require many considerations, and therefore you don’t have to be too alert. All you need is a fast computer with a fast processor.
Hash rate is the number of calculations your system can perform each second. Naturally, the higher the hash rate, the sooner you will be able to close a block and also claim your reward.
Miners are looking for a specified output of the hash function. In hash functions, the same inputs will produce the same outputs, and the information is designed to be unpredictable. The best way to find a specific output is to try as many random arbitrary units as possible.
As mining is incredibly competitive, the miner will need to go through these inputs as quickly as possible. Thus it is incredibly important to choose hardware with a higher hash rate.
2. Electricity consumption
Is the wiring at your home good enough to support a large system? If not, then you might want to consider making some changes. The stronger your hardware system is, the more electricity it is going to need.
If you are concerned about getting your electricity bill up to an all-time high, then bitcoin mining might not be the right profession for you. The job requires an unlimited electricity supply, which can end up in hiking your electricity bill considerably.
One way through which you can figure out your hardware electricity consumption is by measuring the watts and using that to draw an estimate on how much electricity you will be required to use. You can use an online electricity price calculator to know how much of an electricity bill hike you would be able to see and whether you would be able to accept it or not.
Over time, bitcoin mining has turned into a business, and people are now drawn to it because of bitcoins value. The bitcoin was nowhere near as popular a couple years ago, and naturally, there were fewer miners then.
There was also a lot less regulation from the banks and the government, and this was a breath of fresh air for most individuals. The bitcoin back then was merely a decentralized system with minimal external interference, and at that time, most miners were motivated by the idea of bitcoin mining, and they were not in the game for profits.
After a certain period, miners discovered that high-end graphic cards had a significant potential of increasing bitcoins mining power. The graphics cards consumed a lot less energy than before, and they were able to give better results. The results were 50 to 100 times better and faster.
As a result of this discovery, a dedicated mining service was introduced that was able to increase mining capabilities and thus also allowed for mining farms to be constructed at an operational profit.
Now bitcoin mining has turned into a lucrative business, and many individuals pay their bills by operating massive bitcoin mining farms. These farms have been assembled using specialized mining hardware along with graphic cards and also coolers.
Quite a few bitcoin scams are circulating in the market, and bitcoin mining takes care of most of them. It is, however, still good to know a little about the types of scams circulating in the market.
a) Fake Bitcoin Exchanges
One of the first things bitcoin miners work towards combatting is fake bitcoin exchanges. In 2017 South Korean financial authorities uncovered a fake bitcoin scam known as BitKRX. There are a lot of similar fraudulent bitcoin exchanges at work that get people to invest their money and then scam them.
The best way to avoid being scammed like this is to stick to popular forums for your bitcoin exchange only.
b) Ponzi Schemes
Another popular scam is to bring in more money to pay the previous investors. Many fraudsters take part in this idea, and the regulatory bodies have ended up uncovering quite a few big Ponzi schemes.
The amount lost, however, was not recovered in most cases.
Since bitcoin transactions are done online, scammers have also come up with systems through which they could get access to computer networks and also be able to steal passwords and confidential credit card information.
To avoid this, you need to be careful of every link you click on social media. You also need to be alert and install the proper software to be able to secure your account and your confidential information.
d) Fake Cryptocurrencies
Since there is very little regulation on cryptocurrencies, scammers can easily create their fake cryptocurrencies and con people into investing in them. The investment never happens, and the money is directly directed to the scammers’ accounts.
How these scammers convince people to invest is by telling people that it is too late to invest in bitcoin and that they should look towards investing in other forms of cryptocurrencies and hope that they rise in value.
You can easily avoid being scammed like this by thoroughly checking the authenticity of the cryptocurrency the scammer is suggesting. There is no need to be hasty with your decision, do your research well before deciding if this cryptocurrency is authentic and if the cryptocurrency is genuine, consider the prospects of the currency value going up.
e) Asking For Tax Payments Via Bitcoins
A new scam is that people pose as governmental figures and as figures of authority and demand tax payments from users in the form of bitcoins. Most people will send tax money immediately if they receive a notice, and most people would do this without verification.
Scammers take advantage of this and get you to pay bitcoins to them. The reason why they ask for this is that bitcoins are an unregulated currency with no state bank interference. It is the perfect currency to scam someone with.
Naturally, if you can invest in bitcoin, then you should invest in bitcoins because of their popularity. The cryptocurrency has a much lower chance of giving you low returns or losses than other forms of cryptocurrencies.