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Over the past few years, there has been a growing craze for Bitcoin.
Bitcoin enables fast, accurate, and inexpensive money transfers across the world.
It has revolutionized the modern concept of commerce and money.
However, Bitcoin is still a mystery to many.
People are confused about it, its usage, and how to acquire it.
And one of the biggest questions is about Bitcoin mining.
So, lets unravel the mystery!
But first, let me set the stage by defining some key concepts.
What are Bitcoin and Blockchain?
Bitcoin (BTC) is the first and the most prominent digital currency or cryptocurrency.
This cryptocurrency was invented by Satoshi Nakamoto (an unknown person or a group of individuals) in 2008.
Its implementation was released as open-source software in 2009, and thats when it found its first usage.
Bitcoin is built on blockchain technology.
Anyone on the Bitcoin web link can send or receive bitcoins no matter where they are.
you could use bitcoins for online shopping or use them as an investment.
How Do Bitcoins Differ from Traditional Currencies?
Both traditional currencies and bitcoins hold a value, but they are different.
Issuance: Traditional currencies or fiat currencies are issued and regulated by the government.
Unlike traditional currencies, bitcoins are not issued by any central authority.
They are non-tangible or virtual currencies that work only in their digital form.
As a result, people trust printed money more.
On the other hand, bitcoins involve no central authority to regulate Bitcoins creation, flow, or management.
Thousands of computers globally, called nodes, back these bitcoins.
Nodes help validate transactions and store data about previous transactions in a public ledger that anyone can access.
Supply Limit: Fiat currencies have limitless supply, while only 21 million bitcoins can ever be created.
In bitcoins, the transactions involve little to no fees as there are no intermediaries.
Security: Fiat currencies are subject to fluctuating government policies and regulations, leading to insecurities.
Transaction reversal: you’re free to cancel, reverse, or chargeback fiat money.
It is not possible with bitcoins.
Once a transaction has occurred, it cannot be modified.
Speed: Banking transactions take days and hours to get verified and finally reflect on the recipients bank account.
However, Bitcoin transactions are instantaneous based on the networks speed.
You see lots of good points in Bitcoin, but how to acquire it?
Either you could buy it online, get rewarded in bitcoins for some online transactions, or performbitcoin mining.
Lets now learn about Bitcoin mining.
What Is Bitcoin Mining?
Bitcoin mining refers to a process of digitally validating Bitcoin transactions over the Bitcoin web connection.
People mining bitcoins (miners) must solve complex hash puzzles encoded cryptographically to verify the blocks containing transactions.
It requires powerful computing resources and power to solve these problems.
Once they are solved and transactions are verified, the block gets updated on Bitcoins decentralized ledger.
For this effort, miners earn bitcoins.
This complete process is called bitcoin mining.
Furthermore, the aim of Bitcoin mining is primarily two things:
How Does Bitcoin Mining Work?
Each block has information about verified transactions, which is added to the blockchain once its verified.
Heres how bitcoin mining works.
#2.Mining requirements
Mining bitcoins requires advanced tools and lots of computing resources.
The latter one is the most efficient in terms of consumption.
Miners also need an electronic wallet to collect and store their rewards as bitcoins.
#3.Transaction
When an individual sends a Bitcoin to someone, its a transaction.
For each transaction as an input, the mining software creates a unique and complex cryptographic hash.
Next, the software groups the transactions needed to generate a block.
In this, the hashes of transactions are paired using the encryption SHA-256.
Bitcoin miners use this information to solve a hash puzzle to verify a transaction.
For this, they find the hash for a specified target after analyzing the difficulty level.
Once they solve it, a new block is generated that goes through validation by the online grid nodes.
The blocks chronological chaining and PoW make the blockchain secure from modifications.
Next, the block is added to the Bitcoin online grid.
#5.Bitcoin Circulation
Bitcoin mining started in 2009 from Bitcoins genesis block to produce 50 bitcoins.
Many more bitcoins have been mined since and released to circulate.
However, theres an upper limit; only 21 million bitcoins can be mined based on its source code.
How Is A Bitcoin Miner Rewarded?
When Bitcoin was released in 2009, every block miner used to be rewarded 50 bitcoins.
This process of splitting the block rewards into half is called Bitcoin halving.
It occurs after mining every 210,000 blocks, which takes around 4 years.
This implies that miners reward is halved for solving the puzzle and finding a block.
The advantage of bitcoin halving is that it reduces bitcoins inflation and circulation rate.
Hence, it helps maintain the stability of Bitcoins value.
The most recent bitcoin halving took place in May 2020, and the next is expected in 2024.
This process will continue till all the bitcoins are mined, roughly around 2140.
What will happen when all the 21 million bitcoins are mined?
How will the miners earn then?
Well, they will earn only from the transaction fees.
At present, successful miners get transaction fees as well as 6.25 new bitcoins as a reward.
Why Mine Bitcoins?
People mine bitcoins for various reasons.
Lets see the primary reasons people mine bitcoins.
They may seek innovation, want to stay informed of emerging technologies and trends, and love experimenting.
Extending Scope of Work
Professionals in related sectors can enter into the Bitcoin world and mine bitcoins.
For example, many grid computing works are similar to bitcoin mining.
They are fun, allow collaboration with others to solve a problem, and are in demand.
Privacy
The Bitcoin web link offers anonymity to people.
Hence, upon solving a problem and finding the block, you could earn bitcoins while being anonymous.
It protects your privacy and identity as your name wont be displayed, instead of a number.
However, always be careful and not disclose your address.
Profit
Bitcoin is a currency, and when you mine it, you are rewarded.
Hence, people use it for profit.
However, it is challenging since bitcoin pricing frequently fluctuates while the mining process requires heavy investments.
But if you are successful in this, you might make a lot of money.
At the time of writing this article, the pricing for just one bitcoin was US$59,301.40.
Isnt that worth trying?
This is why it is not legalized in many countries such as Russia, China, etc.
Lets look at some of the concerns regarding Bitcoin and its usage.
The method may consume more electricity than a big city or smaller countries like Switzerland.
Decentralized
Countries govern fiat money, and theres a reputation and accountability attached with it.
However, theres no governing body with Bitcoin.
It builds trust issues not only with users but the government.
However, Bitcoin is highly volatile.
No one can know when it will reach the height and when it will crash suddenly.
And the market responds accordingly.
When Bitcoins start sliding, vendors might not accept them as payment.
Criminal activities
Many cybercrimes have plagued the world of Bitcoin.
There are also incidents of creating fake crowdfunding investments, where people have lost millions.
And nobody could be held responsible for such activities.
How to Make the Most of Bitcoin Mining?
As highlighted above, the reward systems for mining bitcoins have been reduced significantly over the years.
Once all the bitcoins are mined, you cant be rewarded in bitcoins, only through transaction fees.
Also, mining bitcoins comes with thousands of dollars of investments in hardware, systems, and computing resources.
Heres how you could do it.
#1.Choosing High-performing Hardware
The number of Bitcoin miners is increasing.
Therefore, you must have high-performing computer hardware that can help in superfast computation and beat the competition.
It must have a high hash rate to achieve top-notch output performance.
ASIC-based hardware is the most advanced, capable of producing hundreds of trillion hashes/second.
Such advanced hardware is costly and may range in thousands of dollars.
#2.Choose the right location
Your location is also an important consideration for effective bitcoin mining.
Its because the cost of electricity varies from location to location, and bitcoin mining consumes lots of electricity.
This can be a good reason why developed nations are great at it.
#3.Check your power consumption
Since mining bitcoins consumes very high power, the cost varies accordingly.
So, find out if your budget can accommodate this heavy cost before you go ahead mining a bitcoin.
#4.BTC Price
Keeping an eye on observing and tracking Bitcoin pricing is essential.
Its because you are rewarded in bitcoins at present, apart from the transaction fees.
So, the higher the market capitalization of Bitcoin, the more your profit will be.
When you mine single-handedly, the probability of reward is lower compared to a group.
Once the Bitcoin miners are successful, they will receive bitcoins based on their computing power contribution.
So, choose your suitable way mining pools or a solo hustle.
By the looks of its unique capabilities, Bitcoin is likely to have a promising future.
