Cryptocurrency has changed the game in recent years. People can buy and sell hundreds of cryptocurrencies to make profits. But no matter how many new coins are introduced, bitcoin remains the top choice for most people.
It is not only the most trusted coin but is of the most valuable coins. Last year, one bitcoin was valued at $67,582. And even when the value decreases, it hikes back up. So the future of bitcoin is bright, and anyone interested in bitcoin must understand what bitcoin mining is all about.
What is Bitcoin Mining?
Bitcoin mining is a decentralized computational process that serves the purpose of creating new bitcoins. When a new bitcoin is created, a new block must be added to the blockchain. This requires the miner to solve complex puzzles using extremely powerful energy-driven computers.
This entire process of bitcoin mining is full of challenges, and if you want to become a successful bitcoin miner, you need to know all the ins and outs of bitcoin mining. Your motivation can be that a bitcoin miner receives a predetermined amount of bitcoin after he has successfully mined a bitcoin.
How does Bitcoin Mining work?
The idea of bitcoin mining originated in 2009 when a hacker there discovered that he could get bitcoin simply by mining for it. That discovery led to the development of mining pools, groups of miners who join together and share the reward.
Bitcoin mining is adding transaction records to Bitcoin’s public ledger of past transactions. It is done by running a computer program that performs complex calculations. To add a block to the blockchain, bitcoin miners must solve highly complex mathematical problems on their incredibly expensive computers. This entire process also consumes a lot of electricity, and with the high competition, you lose the spot to the fastest miner if you aren’t quick enough.
The entire process of bitcoin mining is highly competitive. The difficulty level of the problems increases exponentially as more miners join the network. And let’s not forget that the computer hardware system required for bitcoin mining costs around $10,000. Also, these systems consume a lot of electricity, adversely affecting the environment.
Is Bitcoin mining profitable?
It costs you a lot of money to just set up everything you need to start mining bitcoins. There is a very expensive set of equipment and the electricity cost rising daily. The amount of electricity it requires to mine one bitcoin is equivalent to 9 years of electricity consumed by an average US household.
But even if you manage to get started, you can never be sure of being a successful miner. With bitcoin mining being such a competitive field, you can never be sure that you will be the best out of hundreds of other miners.
Risks in Bitcoin Mining
If you think you’re the right person to start bitcoin mining, you should at least be aware of all the risks you will be putting yourself through. Here are some of the most common dangers in bitcoin mining:
- The volatile nature
All cryptocurrencies are highly volatile, so it’s expected of Bitcoin to be volatile. While last year the value of bitcoin had gone over $60,000, this yea,r in July, the price had dropped to $19,000.
This kind of volatility is pretty standard when you’re dealing with bitcoin. This volatility becomes especially risky for miners as they can never be sure whether their efforts will be worth the reward they will receive.
- Regulation of Bitcoin
Bitcoin and other cryptocurrencies are decentralized, meaning governments don’t regulate them. While this brings transparency we haven’t seen with fiat currencies, many governments worldwide are skeptical about its working.
If more and more governments reject bitcoin, that could essentially bring the overall value of bitcoin down. Plus, there is always the possibility of governments outlawing bitcoins altogether.
- Electricity consumption
Some countries use less electricity than the bitcoin network. The bitcoin network uses 150 terawatt-hours of electricity annually. Mining 1 bitcoin takes up a tremendous amount of electricity. You will hike your electricity bill over 100 times.
- Internet bandwidth
Unless you have an unlimited internet connection, mining bitcoin will be near impossible for you. This is because not only does mining bitcoin require a lot of electricity, but it also requires an unlimited source of internet connection.
Your internet should be fast, so you do not get interrupted while competing to mine a bitcoin. A slow internet connection isn’t worth losing your shot of becoming a successful bitcoin miner.
- Sharing of rewards
Bitcoin mining is competitive in more than one sense. You have a lot of aspiring miners putting up a good fight for the best miner position, but there is also the halving of rewards after every 21 million bitcoins launched. This halving of rewards also happens every four years.
When bitcoin mining rewards started in 2009, miners were rewarded with 50 bitcoins for successfully mining a block. After over a decade, the reward has come down to 6.25 bitcoins a block. As time goes on, it will be halved by more and more. So it’s you aspiring miners to decide whether bitcoin mining is as profitable anymore.
Bitcoin mining is like a lottery where you compete with your mining hardware with everyone on the network to earn bitcoins. Faster Bitcoin mining hardware has led to large clusters of miners working together to solve math problems, making it harder for individual miners to solve blocks and win coins.
You must be extremely talented and resourceful if you genuinely seek profit in bitcoin mining. Bitcoin mining is not something you decide to start doing today and become successful at it in a week. Bitcoin mining is a well-calculated risk that not everyone can take. You must consider every little factor when you start mining bitcoin. Sometimes the ROI is not worth all the efforts we put into the work. There are a lot of other cryptocurrencies that you could start with. So start there. Get comfortable in the kiddie pool before you hit the big waves.