Bitcoin News

What is Bitcoin Mining & How Does It Work?

Bitcoin is what comes to mind when digital currency is mentioned. This most popular and largest cryptocurrency is the new ”gold” you can as well mine.

Bitcoin can be earned through several means among which is buying through fiat currency, trading on platforms or mining. The latter is an alternative for those who don’t want to be involved in buying and selling this digital asset whose price has skyrocketed in recent years.

What is Bitcoin Mining?

Bitcoin mining is the process of creating new bitcoins by solving complicated math problems that verify transactions in the currency. Bitcoin miners receive Bitcoin as a reward for ”blocks” of verified transactions, which are added to the blockchain.

Although Bitcoin mining is seen as a tough task due to its complex nature and high costs, it is still a way of earning from Bitcoin.

The word ”mining” used here is a metaphor for introducing or creating new bitcoin into the system. This is used since it requires work just as mining for gold or silver.

Bitcoin Mining
Bitcoin Mining

How does Bitcoin Mining Work?

Whenever a Bitcoin is successfully mined, a block is added to the blockchain which makes the miner earn a Bitcoin at the end.

For this to happen, bitcoin miners have to compete to solve extremely complex math problems. Expensive computers and enormous amounts of electricity are required to perform this task.

The computer hardware used is GPU (graphics processing unit) and ASICs (application-specific integrated circuits) which can cost up to $10,000.

Bitcoin miners look to generate a 64-bit hexadecimal number using a key called ”nonce for the target hash.  The first miners whose nonce generates a hash that is less than or equal to the target hash are awarded credit for completing that block.

How much does a miner earn?

If a Bitcoin miner is able to successfully add a block to the blockchain, they will receive 6.25 bitcoin as a reward. The reward for BTC mining is reduced by half roughly every four years.

In 2009, when BTC was first mined, mining one block would earn you 50 BTC. This was halved to 25 BTC in 2012. By 2016, it was halved to 12.5 BTC then 6.25 BTC in 2020.

In November 2021, the price of BTC was about $66,000 per BTC, which means a miner would earn about $400,000 after completing a block.

What you need to start mining

It’s understandable that interest in mining has picked up. These are the basics you’ll need to start mining Bitcoin;

  1. Digital wallet– Transactions involving cryptos is impossible without wallets. It is where any BTC you earn after you’ve successfully mined will be stored. A digital wallet is an encrypted online account that allows you to store, transfer, and accept BTC or other cryptos.
  2. Mining software– This mining software can be downloaded and can run on Windows & Mac Computers. Once the software is connected to the necessary hardware, you’ll be able to mine.
  3. Computer hardware– This is the most expensive equipment you’ll need to mine. You’ll need a powerful computer that uses an enormous amount of electricity in order to successfully mine Bitcoin. This computer hardware can cost you up to $10, 000.
Risk of Bitcoin mining

Bitcoin mining is a financial risk as one could go through all the effort of purchasing the expensive equipment for mining without a return on investment. The risks involved could be as a result of;

  1. Price volatility- Bitcoin’s price has varied widely since it was debuted in 2009. The volatility in price has made it difficult for miners not to know their reward would outweigh their investment in mining.
  2. Regulation– Bitcoin is not yet embraced by several governments of the world. The fact that they’re not run by the government make it a risky venture. There is always the risk that governments could outlaw the mining of Bitcoin or other cryptos.

In Conclusion

Bitcoin mining could be seen as a means of earning from cryptocurrency even though it is difficult and expensive to actually do profitably. It is important to note that Bitcoin itself is a risky asset. You can make a fortune from it or lose all you invested at once.

Also Read: What You Need To Know About Bitcoin Confirmations

Prestmit is one of the best exchange platforms where you can buy and sell Bitcoin at good rates.

If you ever find yourself in a position to buy or sell crypto coins in Nigeria or Ghana, Visit Prestmit, it’s the best platform for you.

 

 

Related Articles