Introduction to Bitcoin Mining

bitcoin mining

April 21, 2019

FrederikNielsen
13

Mining is a reward in the form of cryptocurrency to those who provide their computing power for the functioning of the network of this cryptocurrency. Miners use expensive equipment to verify transactions and prevent online fraud. They check new transactions and write them to the global book (blockchain).

In other words, mining is the process of solving blocks in blockchain technology. For solving blocks, a miner (a person engaged in mining) receives a reward in that cryptocurrency, the blocks of which he has guessed.

bitcoin mining

What is it all about?

Any cryptocurrency is a decentralized transaction network for exchanging assets. To create such a network, you need to use computing power and attract certain resources. Since there is no main center in such a network that would manage the process, it is necessary to interest the participants in the network with a certain reward. Yes, now you can really get, or, as they say, mine digital money. Ultimately, mining is just the aspect that characterizes the key difference between digital currency and fiat currency. Moreover, any person can do mining.

How do I mine and what I need

Initially, mining (confirmation of transactions) could be done on a regular personal computer. Then, for computing, they began to use video cards that had a graphics processor for displaying data. But the increase in computing power requirements has led to the emergence of specialized devices, the so-called ASIC (application-specific integrated circuit – a special-purpose integrated circuit). Although in fact, the equipment for mining cryptocurrency is not  just chipping, but entire specialized devices designed to calculate keys for blocks.

Miners assemble such devices into farms where hundreds of similar devices can be used. In addition, to obtain efficiency in the work of the miners are combined into pools. Calculations are distributed in the network among miners, which improves their performance. Thus, material costs become very substantial. In addition, the amount of remuneration decreases with the increase in the number of new bitcoins. All this has caused criticism of this method of confirming transactions.

bitcoin mining

Does it make money?

An affirmative answer to this question is difficult. Uncertainty is one of the major drawbacks of mining. The degree of its expediency depends on the rate of cryptocurrency, the complexity of production, the cost of equipment, electricity tariffs, equipment performance, as well as technical changes, in particular, the volatility of the cryptocurrency market. However, one should not forget that with the increase in the price of cryptocurrencies that can be mined, the payback period for the mining farm also decreases. In addition, as the popularity and demand for cryptocurrencies grow, as well as the increase in the number of farms and production volumes, the price of equipment also increases. Simply put, the later you start mining, the more you have to invest at the initial stage. Five business presently control the Bitcoin mining market:

Cloud mining

Cloud mining (virtual, online, cloud mining) is a new word in mining Bitcoin, Litecoin and other types of cryptocurrency. Cloud mining services are considered the most profitable way to mine cryptocurrency in 2018. Giant data centers are located in places with low tariffs for electricity and heat. They are directly connected with the largest manufacturers of electronics for the world of cryptocurrencies. Therefore, it is profitable for them to expand and increase production volumes.

Frederik Nielsen
Frederik Nielsen

I’m a freelance writer and full-time curious person. My main interests are philosophy, politics, art, culture, science, and how they’re all interlinked. When I’m not writing, I’m fronting a band, producing records, and making videos. I’m also currently working on launching a YouTube channel that will focus on culture and politics. I think blockchain technology is fascinating because of the huge potential it has to revolutionise not only the financial sector, but society as a whole.

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