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One of the most common thing that you hear about the cryptocurrencies is mining. Especially Bitcoin mining. It has been all over the internet. So what is mining and how it works? Can you profit out of it, or it is just a myth? Keep on reading, as I will try to give you the easiest explanation about mining. There is a lot of technical explanation about the mining, but I don’t want to go through that. I am going to leave that one, for some tech blogger. In the following 2 blogs I am going to focus on Bitcoin and how you can mine, how it works, and can you profit out of it. I will cover some of the companies that you can mine with, make referrals and profit.
- What is a bitcoin mining?
Bitcoin mining is a process by which transactions are verified and added to the public ledger or the blockchain. Any person that has an internet connection and suitable hardware can participate in the mining. The mining process itself involves organizing the recent transactions into blocks, by solving a complex mathematical problems. The person who will solve this problems gets rewarded with bitcoins. The amount of the bitcoin is limited to 21 million bitcoins. And up till today there are over 12 million bitcoin mined. The more miners, the faster transactions and less fraud. That is why the miners get compensated for the hard work. For that transaction the miner gets a small fee or gets paid for that transaction.
Sound profitable?Well, not so fast. Satoshi Nakamoto the person who invented Bitcoin wanted the number of mined bitcoins to stay always constant, no matter how many miners joined the network. And that’s why the difficulty increases as more miners join the network. Back in 2009 you could’ve mined 200 bitcoin in a few days, only using your personal computer.
In 2014 it will take you 98 years to mine just one bitcoin. That is why were invented ASIC (Application Specific Integrated Circuit) or a super computer just to mine bitcoins. Again it’s very difficult to mine alone. And that is why mining pools were invented, where individuals joined together to deal the growing difficulty of mining, and each miner get’s paid for it’srelative share of the work. This is how Bitcoins are born, through miners.
The amount of new bitcoins released with each mined block is called block reward. The block reward is halved every 210,000 blocks, or roughly every 4 years. The block reward started at 50 back in 2008, 25 at 2012, 2016 got halved into 12.5 and will continue to halve on every four years all the way up till 2140, when the last bitcoin will be mined. Many of the crypto gurus are speculating, predicting that the price will go very high, simply because the supply of bitcoins is getting smaller and the demand is becoming higher.
Let’s wait and see what the future will bring.
This is a very simple explanation onbitcoin mining, and how it works. This is the way the mining works for most of the coins.
Nonetheless, Ethereum is reportedly switching to a proof of stake framework later this year, which means Ether mining could be no longer relevant. This could also lead to increase in the price of Ethereum.
If you would like to learn more in details about how the mining works from the technical part, you can always contact me and I will be more than happy to guide you where you can find this information.
As I mentioned above my main purpose of this post was can you make some profits out of the mining? You can certainly make.
There are 2 major ways that you can mine Bitcoins.
- You can buy mining equipment for yourself and start mining at home
- You can join a mining pool and start mining and earning
Let’s brake them down:
- Mining by yourself at home.
When you are starting to mine solo, first you need a special software like bitcoinclient for your computer. It might take a longer period to load, depending of your internet connection. During the loading your computer will download all the blocks of all transactions, purchases and transfers since bitcoin was invented. There are more than 20 GB of blocks. This is the first obstacle.
The second thing you need to do is to purchase mining hardware. There are three main hardware categories for bitcoin miners: GPU, FPGA and ASIC.
GPU graphic cards are designed for heavy mathematical problems to calculate in high end video games. This makes them very good for mining. This units can be used with othercryptocurrencies other than bitcoin. litecoin, for example uses a different proof of work algorithm to bitcoin, called Scrypt. This has been optimized to be friendly to CPUs and GPUs, making them a good option for GPU miners who want to switch between different currencies.Bitcoin mining difficulty has accelerated so much with the release of ASIC mining Power that graphic cards can’t compete. The graphic cards are good for mining other altcoins.
FPGA (Field Programmable Gate Array) are customized for mining. They offer improved performance over CPU and GPU. They can operate at around 750 Megahashes/sec.
ASIC (Application Specific Integrated Circuits) are specifically designed to do just one thing: mine bitcoins at mind-crushing speeds, with relatively low power consumption. These chips because are specifically designed for mining, their units are expensive and time consuming to produce. But their speeds are stunning, somewhere from 5-500 Gigahashes /sec.
The hashrate is very important when you are mining Bitcoins. This is the number of calculations that your hardware can perform every second as it tries to solve the mathematical problem. The higher your has rate will be, the more likely you are to solve a transaction.
All of this hardware equipment that you need to purchase if you want to mine bitcoin by yourself is consuming a lot of electrical energy. You must always look at your hardware energy consumption. You don’t want to spend all of your money on electricity to mine the coins that won’t be worth what you paid. You can calculate how many hashes you are getting for every watt of electricity that you use. To do this just divide the hash count by the number of watts.
Before starting, you must get all the necessary information and calculate the projected profitability of you miner. There is an excellent mining profitability calculator that you can use: (https://tradeblock.com/bitcoin/mining/). You can input parameters such as equipment cost, hash rate, power consumption and the current price of bitcoin to see how long it will take to pay back your investment. Another important fact that you must consider is that the equipment that you are mining with is becoming older with time. So you will have to renew the equipment after year or two, if you want to be on track with the mining.
This are the steps that you must take into consideration before you decide to mine by yourself. Do not be surprise if you will get low number. You can also have a look at some other coins that you can mine, and maybe those coins might be more profitable than bitcoin.
In the next post I will put the focus more on the mining pools that you can join and mine. Which in my opinion is more effective then mining by yourself. If you are mining other coins that are just starting, this might be a good investment for the future. You will be ahead, and in a few years until the price of a certain coin goes up, you will mine a sufficient amount of coins.
Until next time…..
Stay safe in the crypto world
Thank you for reading
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