#Crypto 360
#Blockchain
Bitcoin Mining is an energy-intensive process involving software and mining devices that compete to solve a cryptographic problem known as a proof-of-work (PoW). The individuals managing the operation are known as “miners.”
Is Bitcoin mining worth it?
KEY TAKEAWAYS
• Bitcoin mining is the process of solving a computational problem that checks the transactions and enters them into the ledger known as the blockchain.
• The mining reward, which was initially 50 BTC per block in 2009, is cut in half approximately every four years to keep a moderate rate of new bitcoins introduced into the market. Currently, miners are rewarded 3.125 BTC per block.
• To mine Bitcoin, you must use specially designed machines, such as ASICs or graphics cards, that can solve complex puzzles.
• Anyone considering starting mining must ensure that the cost is worth it compared to the earnings he will earn from it.
Bitcoin (BTC) is being adapted more and more every year. Though it is less widely used than fiat currency, it is becoming increasingly popular as a financial tool. But how is Bitcoin created?
Unlike fiat currency, BTC is not printed or created by a central authority. Instead, it is made through a unique cryptographic mathematical problem-solving process known as “mining.”
One of the attractions of mining BTC is the massive reward. By March 8, 2024, the Bitcoin valuation had peaked at $70,000, rewarding miners 6.25 bitcoins per block, with their load valued at about $426,781.25. However, these rewards are halved every four years (a strategy meant to manage inflation). From 2009, the block reward was 50 BTC, halved to 25 BTC in 2012 and every four years after.
On April 19, 2024, the latest Bitcoin halving cut the rewards to 3.125 BTC, leaving the mining landscape in constant change. The Bitcoin mining process can be confusing if you are new to the space. Below, we’ll explain it in simple terms.
Bitcoin (BTC) is the world’s first decentralised digital currency that enables P2P transactions without the involvement of intermediaries such as banks, governments, agents, or brokers. Bitcoin’s ecosystem relies on the technology known as blockchain. The technology allows people to transfer Bitcoins to someone else in the network regardless of the receiver's location. You can buy Bitcoin on any of the cryptocurrency exchanges, including BitDelta.
Activities conducted over the Bitcoin network are faster and cheaper since no central body or middleman regulates the process. This network is also secured through strong encryption, which makes it practically impossible to reveal the identities of the sender and the receiver. Moreover, the transactions cannot easily be forged or tampered with since they are almost entirely secure. Also, all transactions are recorded on a public ledger and can be checked anytime by anyone.
“Bitcoin Mining” is an energy-intensive process involving software and mining devices that compete to solve a cryptographic problem known as a proof-of-work (PoW). The individuals managing the operation are known as “miners.”
These miners validate transactions and mint blocks, thereby creating a chain of blocks known as a blockchain. Simply put, a blockchain is like a book with many chapters added only after a set of subject matter experts (SMEs) check and approve the information in each chapter.
As the Bitcoin network progresses, the cryptocurrency's mining reward gradually decreases. The decrease in circulation will continue until the maximum cap of 21 million bitcoins is reached. In that case, the new bitcoins will not be issued as mining rewards; rather, miners will be rewarded only in terms of transaction fees for their processing services.
If you are primarily involved in purchasing or exchanging Bitcoin, then the mining process may not be of much concern to you. Nevertheless, it is essential to understand mining since anyone dealing with Bitcoin contributes to the network's functionality.
The Bitcoin network is decentralised, meaning no central authority regulates and maintains records of users’ balances. On the contrary, Bitcoin relies on its users, who hold separate copies of the transaction history. Mining is a way by which the network comes to a consensus about whether the record of the transactions that have been shared is accurate.
About every 10 minutes, enough transaction records are gathered to create a new block, which is nothing but a composite of numerous encrypted transactions so that they cannot be altered easily. Miners add new blocks to the blockchain, and those who successfully add a new block get a mining reward.
This is not just a process of getting new transactions and submitting them; it involves solving complex mathematical problems to ensure that the transactions are not fraudulent. Miners’ computers operate cryptographic algorithms at the rate of trillions per second to be the first to produce a number that falls within a particular range. Completing this challenge enables the miner to submit a new block to the network, meaning other nodes will verify whether the block is valid; if the block is found valid, the miner gets the reward.
Let’s explain Bitcoin mining with a simple analogy. Consider asking your friends to choose a number from 1 to 100. They do not need to guess the precise number; they only need to be the first to guess a number equal to or less than the number you are considering. If your secret number is 19 and the initial guesses are 21, 55, and 83, none of your friends win because all their guesses are too high. However, they try again, with 16, 41, and 67, and the friend who guesses 16 wins for being the first to guess under your number.
The number 19 in this example is what is referred to as the “target hash” that Bitcoin miners are striving to meet with their computational power. The blockchain network creates a hash (each 64 characters long) for the block containing transactions. All these miners, from different parts of the world, are having multiple guesses at high speed using sophisticated cryptography and computing power to authenticate and provide security to Bitcoin transactions.
Ultimately, Bitcoin mining is a race to choose the correct number backed by modern technology and encryption. This process provides security and validation for Bitcoin transactions in massive global proportions.
Image: The process of Bitcoin/crypto mining
Bitcoin mining companies such as Marathon Digital Holdings, Cleanspark, Riot Blockchain, Core Scientific, Bit Digital and Hut 8 Mining are among the most profitable tech ventures in the space.
To mine Bitcoin, you must use certain mining hardware. People willing to try their hand at mining should buy powerful tools and equipment for mining cryptocurrencies. To manage the mining hardware well, you have a good knowledge of how the computer works, especially the advanced functions.
As a miner, you must create at least one secure and easy-to-use Bitcoin wallet to store mined Bitcoins. To start mining, you must set up the hardware and open a Bitcoin wallet; then, you must download and set up mining software and utilise your knowledge to optimise the process. Bitcoin mining is the process that begins after the miners acquire a soft copy of the Bitcoin blockchain and run mining software. However, you will need to check on the process occasionally to ensure that everything is running without any hitch.
Here's a quick look at some key statistics about Bitcoin mining:
• A miner earns 3.125 Bitcoin, or $196,875, for adding a new block to the blockchain as of April 2024 Bitcoin halving.
• Bitcoin mining consumes about 176 terawatt-hours of electricity annually, which is higher than the combined annual energy usage of countries such as the Netherlands and the Philippines, as pointed out in the Cambridge Bitcoin Electricity Consumption Index.
• As of August 2021, a single Bitcoin is mined using the same amount of electricity that an average household uses in nine years.
• The price of Bitcoin has been quite volatile, rising and falling at certain times. For example, in 2020, it was as low as $4,107 and then surged to reach an all-time high of $73,750 by March 2024. As of now, BTC/USD is trading at about $62,700.
• As of January 2023, the probability for a solo miner with moderate computing power to solve a Bitcoin hash was one in twenty-six (1/26).
• According to the Cambridge Electricity Consumption Index, as of January 2022, the United States accounted for 37.8% of the total hash rate, followed by Mainland China, with 21.1% and Kazakhstan with 13.2%.
Several tools can be used to start the Bitcoin mining journey.
Another way to join the ecosystem without buying a mining rig is by joining a “mining pool.” Such a pool allows anyone to participate by simply owning a laptop and then sharing rewards with the rest of the miners. You can even explore cloud mining, where you pay a company to mine Bitcoin for you. However, the higher the contribution or computational power, the higher the rewards.
The early start of Bitcoin mining saw miners reap massive rewards in BTC. However, as Bitcoin's rewards have been cut due to halving cycles and more miners joining the race, profits have taken a hit over time. Before embarking on a Bitcoin mining journey, it's vital to thoroughly review the costs and the potential profitability or read articles like this to equip yourself to make informed decisions.
Typically, Bitcoin mining can be profitable but requires a massive amount of hashing power, which requires powerful ASIC devices and consumes a vast amount of energy. Another friendlier way to get started is through cloud mining—simply buy a mining contract remotely without the need for a hardware device. Whichever works best for you, always make sure you do your own research before making any decisions.
Bitcoin mining is how new bitcoins are introduced into the economy. It requires solving complex problems to approve and include the transactions in the blockchain and create a record of all Bitcoin operations.
Miners get a specific amount of bitcoins for solving a puzzle and adding a new block to the chain. Initially, this reward was 50 BTC, cut in half every four years to manage the rate of creating new bitcoins. Currently, the reward is set to 3.125 BTC per block.
To do this, you require high computing power in the form of ASIC miners or high-end graphics cards capable of calculating complex algorithms. You also need a decent internet connection and a lot of power to feed all the computers and keep them cool.
The most affordable way is to join a mining pool whereby you and other miners work with your mining power and then share the rewards, or you can opt to do cloud mining. Cloud mining allows you to pay a company and have them mine on your behalf, thus freeing you from the need to purchase hardware.
Mining Bitcoin has become less profitable since many miners joined the venture over the years, and fewer bitcoins are being issued as rewards. When it comes to mining, you have to compare your expenditures on electricity and equipment to the earnings you may get.
The network reaches a new block approximately every 10 minutes.
There is a total supply of 21 million Bitcoins, and about 2 million Bitcoins are still yet to be mined.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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