Bitcoin is what comes to mind when digital currency is mentioned. This most popular and largest cryptocurrency is the new ”gold” you can also mine.
Bitcoin can be earned through several means: 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 added to the blockchain.
Although Bitcoin mining is considered a tough task due to its complex nature and high costs, it is still a way of earning from it.
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.
How does Bitcoin Mining Work?
Whenever a Bitcoin is successfully mined, a block is added to the blockchain, making the miner earn a Bitcoin.
For this to happen, bitcoin miners must 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), costing 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 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 can successfully add a block to the blockchain, they will receive 6.25 bitcoin as a reward. The reward for BTC mining is reduced by roughly half 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
Understandably, interest in mining has picked up. These are the basics you’ll need to start mining Bitcoin;
- Digital wallet– Transactions involving cryptos are 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.
- Mining software– This software can be downloaded and run on Windows & Mac Computers. Once the software is connected to the necessary hardware, you can mine.
- Computer hardware– This is the most expensive equipment you’ll need to mine. You’ll need a powerful computer that uses enormous electricity to mine Bitcoin successfully. 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 expensive equipment for mining without a return on investment. The risks involved could be a result of the following;
- Price volatility- Bitcoin’s price has varied widely since it debuted in 2009. The volatility in price has made it difficult for miners not to know their reward would outweigh their investment in mining.
- Regulation– Bitcoin is not yet embraced by several governments of the world. The fact that they’re not run by the government makes it a risky venture. There is always the risk that governments could outlaw the mining of Bitcoin or other cryptos.
Bitcoin mining could be seen as a means of earning from cryptocurrency even though it is difficult and expensive actually to do profitably. It is important to note that Bitcoin itself is a risky asset. You can profit from it or lose all you invested at once.
Also Read: What You Need To Know About Bitcoin Confirmations
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