Bitcoin Mining: How Does Bitcoin Mining Work?
Whether you’re familiar with trading and investment jargon or not, we can almost guarantee that you’ve heard the term “bitcoin.” The word “bitcoin” is searched almost two million times each month. Many people understand the basic concept of bitcoin, as a popular cryptocurrency, but not many people understand why bitcoin is so appealing. Since it’s inception in 2009, Bitcoin’s value has skyrocketed, making it a popular commodity. Just one bitcoin is worth almost $60,000 USD, so there is also an appeal with it’s significant value.
Despite the currency’s lack of legal backing, people around the globe use bitcoin because it’s decentralized, meaning that its value isn’t dictated by the government, economy, or stock market. In addition to the decentralized appeal, people are flocking to bitcoin due to it’s transparency, and ease of transfer.
Unlike government-controlled currencies, all bitcoins and the amount of bitcoin a person has is a matter of public record, which can help people verify that someone has enough currency to cover a product or service which can eliminate scams. Further, transactions are kept as public record. Despite operating through transparency, bitcoin protects the privacy of its users with personalized numerical codes and pseudunyms.
So, how does bitcoin mining work?
Cryptocurrency mining is a subcategory of the investment and trading realm that requires no initial capital. Thus, those who would like to get involved in making profits, but don’t have the disposable income, may wish to explore cryptocurrency mining. The challenging part is how to mine cryptocurrency, because it does require some skill, patience, and time. In sum, miners verify cryptocurrency transactions and ensure that people do not double-spend bitcoin. Double spending is an issue that is limited to cryptocurrency, because it cannot occur with tangible currency.
However, with bitcoin, the currency holder could copy the cryptocurrency and attempt to double the amount of cryptocurrency they hold. Miners are able to verify up to 1 MB of transactions which would entail one transaction or up to several thousand transactions depending on the size of the transaction. The 1 MB limit was set to ensure equality amongst miners. As a reward for successfully being the first to verify transactions, miners are rewarded with Bitcoin.
When Bitcoin was created, miners were rewarded 50 Bitcoin, but every four years, the earning is halved. As of 2020, miners earned 6.25 bitcoin for every solved block which equates to about $111,875. This sounds like a good portion of money, but there are limitations. Each day just 144 blocks are mined, and there are far more miners than there are blocks to be mined, therefore many miners will go days, even weeks without effort.
Bitcoins are created from miners’ efforts, as Bitcoins come into existence as rewards to miners. However, there will only be 21 Million Bitcoin created, and as of April 2021, there are 18,670,418.75 Bitcoins in existence. Once 21 million Bitcoin are in existence and all are mined, there will be no more mining work. It is estimated that Bitcoin mining will be complete in 2140, so there is still plenty of time for those interested in initiating mining.
The challenge with Bitcoin mining is that one must be the first to successfully verify the transaction, so verifying the transaction alone will not result in reward. Bitcoin mining is competitive in that there are a limited amount of transactions to be verified each day and there are hundreds of thousands of miners all working to be the first to verify them.
Also, it is estimated that a new Bitcoin comes into existence every ten minutes, meaning there is a limit to how many transactions can be verified each day. There are various softwares and hardwares that can be used to mine, and the faster equipment will have better odds at earning bitcoin, but these pieces of equipment are expensive.
Although there is no initial capital required, to be successful one will need sufficient equipment, so it’s a trade off. The biggest risk with bitcoin mining is the financial risk because it often costs money to get involved, as mentioned, and there is no guaranteed payoff.
In sum, mining is like solving a puzzle by guessing the correct sequence of 64 numbers (Hexidecimal) with unlimited available guesses. An example of a 64-Digit Hexadecimal number is 0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee.
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How to mine Bitcoin?
If you’ve read this far, then you are likely very serious about mining Bitcoin and would like to know how to mine Bitcoin. Before going any further, consider your countries’ attitudes towards cryptocurrencies as there may be regulations that mining may impact. We’ve outlined several steps to help you succeed in Bitcoin mining –
Step 1: Initial Costs
As stated previously, you will need to acquire equipment to have the best opportunity for success. The ASIC mining box is the most powerful mining tool, but they cost as much as $8,500. Bitcoin mining hardware ranges anywhere from $2,000 to $8,500, so even going with a more economical option will cost a couple of thousand dollars up front. This can be challenging if you do not have the disposable income, so it is important to understand the risks associated with Bitcoin mining, as with every investment, there are associated risks.
Step 2: Choose to mine individual or with a bitcoin mining pools
Bitcoin mining can be completed either individually or within a mining pool. Your efforts don’t have to be lonely, mining pools are groups of miners who agree to share the Bitcoin reward in exchange for greater mining power. Essentially, the odds are better that someone in a group will crack the block as opposed to someone attempting to mine solo.
There are several mining pools that are available, and they all have their pros and cons. As of 2021, Slush Pool is the top mining pool and has mined over 1.25 million Bitcoin in the last ten years. Pooling is another popular mining pool that claims they have mined 13% of Bitcoin. When searching for mining pools, consider what your share of the mined Bitcoin would be, their hash power, and how many miners are in the pool. Also, some pools will focus solely on Bitcoin while others will focus on multiple coins to increase the odds of profit. Also, there are mining pools that use cloud-based mining which doesn’t require miners to purchase mining equipment, but rather pay for their mining spot. If you are someone who doesn’t have much capital, then choosing a cloud mining pool may be a good option to help you get started.
Finally, consider the payout options. Some pools will pay based on the percentage of blockchain that was correct, even if the whole puzzle was not solved, but beware of these because these types of pool often can’t sustain themselves financially long. The other option is joining a pool that uses a proportion model, or a model that awards users based on how much they contributed to the correct overall puzzle. Consider these options as they will help enhance your chances at payout.
Step 3: Get a mining program for your computer
Once you have the hardware, and chose whether you will mine individually or within a pool, you will need to download a software which will connect you to the bitcoin network and blockchains. There are various free programs that will do this for you, so you won’t have to spend money to get connected. Also, some mining pools will have accompanying software, so if you’ve chosen to get involved with a mining pool, then check to see if they have a software that you need to download.
A popular software for novice miners is the Nice Hash Miner program, as it’s user friendly and walks miners through the process of mining step by step.
Step 4: Start Mining
Now that you’ve taken all the steps to set yourself up for mining, it’s time to connect to the Bitcoin network and start the process of mining! It may take you a bit to learn how to navigate the different options and systems, but that’s okay. Feel free to explore different mining options to determine your best strategy.
How long does it take to mine 1 Bitcoin?
It’s difficult to pin-point exactly how long it may take for someone to mine a Bitcoin, because it’s essentially a race. As mentioned previously, a new Bitcoin comes into existence every 10 minutes, so it theorized that miners verify a transaction by figuring out a 64-digiy Hexadecimal every ten minutes.
However, how long it will take a single miner to successfully mine a Bitcoin will depend on several factors such as whether or not they joined a mining pool. If they joined a mining pool, naturally their odds of successful mining will increase, but their reward will be smaller. Those who mine individually may not earn a reward for verifying transactions for up to seven years. When considering the time, effort, and investment, earning a single reward, or 6.25 bitcoin every several years does not equate to much.
Is Bitcoin mining worth in 2022?
Again, it’s difficult to say for sure whether mining Bitcoin is worth it. Sure, there is a huge pay out if you’re the first to verify a transaction, but it’s competitive. Using mining pools will give you a competitive advantage and enhance your hash power, but successful mining will only reward you with a portion of that bitcoin reward. Essentially, with a mining pool, it’s like splitting up $111,000 across however many participated in the transaction verification.
There are opportunities to mine bitcoin without too much start up costs, such as joining cloud-based pools, so mining bitcoin could be a way to potentially earn passive income. However, bitcoin rewards are not guaranteed, and therefore cryptocurrency mining as a whole should be done by those who simply enjoy the verification process and see the potential reward as an added perk. Someone who fixates on the bitcoin reward and only mines for that reward may face several years of disappointment. For more immediate gratification in monetary gains, there’s cryptocurrency trading.
Still, trading has it’s risks as no realm of investments and trades goes without some financial risk, however, cryptocurrency trading has better odds at monetary gains. Further, while cryptocurrency trading does require some disposable income as a capital investment, most bitcoin mining options whether mining pool options or individual options often have costs associated as well.
We hope that this article has provided you with the information needed to make an informed choice on bitcoin mining. As always, happy trading –or in this case, happy mining friends!