Last Updated: 11 January 2023
There are two ways to get Bitcoins right now. The first is to buy Bitcoins (or a fraction of a Bitcoin) on an exchange, and the second is to accept Bitcoin as a form of payment for goods or services.
The third approach, known as “mining,” involves creating and entering Bitcoins into the system.
Whereas gold and silver are extracted from the earth by excavators, Bitcoin mining involves people worldwide safeguarding the Bitcoin network and earning bitcoin as a reward for their efforts.
What Is Blockchain Technology?
The Blockchain, as previously stated, is a distributed, open ledger that is present on Bitcoin nodes all around the world. The Blockchain consists of “blocks,” which are strings of several transactions connected in a literal “chain.”
Miners are mainly responsible for validating Blockchain transactions. This is accomplished by applying a complex mathematical formula to the data in each block, resulting in a shorter sequence of letters known as a ‘hash.’
A hash is essentially a time-stamped mark of verification applied to blocks of transactions. A hash is made up of information within the block and the hash of the previous block in the chain and is represented as a random string of letters and digits.
If one of the block’s elements is changed, a new hash is generated, which changes the block and the chain’s subsequent blocks. This implies that any attempt to tamper with the Blockchain is highly obvious and difficult to replicate. Furthermore, each new block added to the Blockchain makes the preceding blocks more difficult to modify, similar to a fly progressively being trapped in layers of amber.
To validate blocks of transactions, miners use complex computer systems and specialized software. Each block is sealed off when a ‘correct’ hash sequence is created, and the miner who is in charge of confirming transactions is paid with Bitcoins.
Miners receive 12.5 Bitcoins for each verified block as a reward at the time of writing. After 210,000 blocks, the amount decreases by half. The fact that there will be just 21 million Bitcoins ensures that their value remains stable throughout time. The dollar value of each bitcoin rises as the number of bitcoins created in each block decreases over time.
Furthermore, the difficulty of producing a valid hash increases over time; for example, Bitcoin’s difficulty varies every 2016 block and is intended so that mining a single block should take roughly ten minutes. This means users won’t be able to hash hundreds of transaction blocks each second, and Bitcoins will be distributed over a more extended period of time.
Is it Profitable to Mine Bitcoins?
Bitcoin’s price climbed from $750 to an all-time high of $20,000 in 2017, providing investors and traders with excellent prospects to earn from keeping and trading the cryptocurrency.
While most people will buy Bitcoins on an exchange and accept them as payment for services, a few adventurous bitcoin “prospectors” want to mine their share. On the other hand, many miners will find that they spend more time and money trying to keep up with the difficulty of mining Bitcoin than actually mining Bitcoin.
The fundamental rule of Bitcoin mining is that the more you mine, the more complex the process becomes. Unfortunately, Bitcoin has proven to be too tough to mine for most traditional computer systems, resulting in creating specialist’ Bitcoin mining rigs.’
Mining workstations with customized computer processors specifically tailored to solve the Bitcoin hashing function have been built or purchased due to this. As a result, miners can hash more effectively with these modified processors, known as ASICs, providing them a comparative advantage. However, the process of obtaining these systems frequently has an unexpected consequence, as the cost of powering such rigs is frequently higher than the cost of acquiring such equipment in the first place.
According to Blockchain.info, bitcoin miners worldwide consume 1 005.59 kilowatt-hours of electricity per day in their quest to produce more bitcoins. This indicates that the industry spends over $150 000 per day on electricity.
Bitcoin mining, on the other hand, can be highly profitable because bitcoins are given out as a reward for completing the procedure, and as the value of bitcoin rises over time, one’s income can cover one’s expenses.
12.5 Bitcoins are offered as a reward for validating transaction blocks on the Blockchain at the time of writing. However, it is still a tempting promise for miners, and it has even led to the establishment of large-scale Bitcoin mining companies that buy high-end computer equipment in bulk to mine Bitcoin.