An Introduction to Mining Bitcoin
Bitcoin mining is at the heart of the Bitcoin technology. It keeps the currency functioning, it creates new Bitcoin, and anyone with a computer can do it. In theory, mining Bitcoin can earn you money; however, it’s not a get-rich-quick scheme. It’s difficult and requires a lot of upfront research and investment, but it can be done profitably, and this article will tell you how.
First things first, you need to understand what Bitcoin mining actually is, and to understand that, you need to understand the Bitcoin blockchain.
What Is The Bitcoin Blockchain?
The Bitcoin blockchain stores all the Bitcoin transactions ever made, and thus keeps track of who owns Bitcoin. Each computer (node) on the Bitcoin network contains a complete copy of the Bitcoin blockchain, and the Bitcoin blockchain itself is represented by a chain of blocks, with each block containing a certain number of Bitcoin transactions. When a new Bitcoin transaction is made, it is broadcast to the entire network of nodes and they all work to verify the transaction and add it to the blockchain. This work is known as “mining.”
All the nodes are simultaneously trying to mine the next block. Once one succeeds, all the new transactions which aren’t yet part of a block are added to this new block and the new block gets sent out to the rest of the network to be added to the blockchain. But how do nodes actually mine new blocks?
What is Mining?
To mine, nodes pass information representing the new block through a special hashing function, which then spits out a number. The number is essentially random, and the nodes keep working and spitting out numbers until one of them produces a number below a certain target value, at which point a new block is created and all the nodes begin to work on mining the next block. The target value is adjusted every 2016 blocks, or approximately every two weeks, with the goal of keeping the rate of block creation at about one block every ten minutes. This means that the more miners there are, the harder it is to mine a new block.
Why would someone want to mine? When a node successfully mines a new block it receives Bitcoin as its reward. When Bitcoin began 8 years ago, a node earned 50 Bitcoin for creating a block. However, the reward is halved approximately every four years, so mining a new block today earns you 12.5 Bitcoin, which is currently over $100,000. But don’t get too excited. Whereas in the early days of Bitcoin, you could mine a couple hundred Bitcoins a week with just your laptop, today it would probably take your laptop a hundred years to mine a single Bitcoin. The game has changed dramatically.
Modern Bitcoin Mining
The reason modern Bitcoin mining is so competitive is pretty simple. Once people realized Bitcoin mining was a lucrative endeavor, they started to invest in faster hardware and design hardware specifically optimized to mine Bitcoins. As the processing power in the Bitcoin mining world has increased, mining has gotten more and more difficult so that only one block is mined every ten minutes, leaving the average laptop miner far behind. This doesn’t mean you can’t make money mining Bitcoin, it just means it’s not as simple as it used to be.
How To Profitably Mine Bitcoins
One of the biggest impediments to profitably mining Bitcoin is the cost of electricity. Because of the immense processing power involved, your machine is going to suck up a lot of power. It has been estimated that to mine a single Bitcoin in the U.S. costs between $3,000 and $6,000 in electricity, depending on where you live. This is one of the reasons so much Bitcoin mining is currently done in China, where electricity is especially cheap.
Even if you were willing to wait years for your laptop to successfully mine Bitcoin, the electricity costs would be greater than the value of the Bitcoin. For this reason, you need to buy hardware specifically optimized to mine Bitcoin. There are big expensive options that cost more than $10,000 and more accessible options that cost a few hundred dollars, but either way, you’re going to have to spend money upfront.
Even with specialized mining equipment, it’s not easy to successfully mine a block alone, so most Bitcoin miners join what are known as mining pools. These pools are a way for miners to combine their computational resources together so they have a greater chance of mining a block. Then, when the pool successfully mines a new block, the reward is given out to the members in proportion to how much computational power they contributed. This way you can make a steady income rather than having to wait indefinitely for your rig to mine a block by itself.
Do your research before choosing a mining pool. There are quite a few, they are all a bit different, and they charge different membership fees. But it’s worth it, because unless you’re willing to spend hundreds of thousands of dollars on mining hardware, joining a mining pool is the only way you’ll make money.
Bitcoin mining is difficult, and it’s only going to get harder. In order to have any chance at making money, you’re going to have to make a big, upfront investment in hardware. Even then, you need to ask yourself if Bitcoin mining is something you want to be involved in for the long term. Mining isn’t profitable if Bitcoin doesn’t go up in price, and recent developments haven’t been promising. If all that doesn’t scare you off, find a mining profitability calculator online and do some research on hardware costs in order to get an idea of your initial investment.
If Bitcoin mining isn’t for you, you can always look into mining less popular cryptocurrencies and trading them for Bitcoin, or you can just buy Bitcoin on a Bitcoin exchange. If you are willing to give it a shot: good luck and happy mining!