In Bitcoins, the soaring markets attract investors and put them into action. Several others are keen and skeptical. For them, within Bitcoins investment, there is a niche called Bitcoin mining. While almost all are lesser or more aware of Bitcoin investing, few are fully informed of mining.
In this article, we attempt to explain to you what Bitcoin mining is and how does it work.
What is Bitcoin mining?
Consider Bitcoin mining as another name for processing the transactions that occur in the Bitcoin digital currency system. In simple terms, Bitcoin tokens are given to the users (also called the miner). The users provide the computational power on their behalf for the transactions to take place.
Whenever any successful transaction is executed, it results in a block being added. This block gets added to the digital ledger of the previous operations. No one can alter this digital ledger. In technical terms, this ledger is also called the blockchain.
What goes behind Bitcoin mining?
Central banks create the traditional money. The miners get Bitcoins during the transaction process. Whenever there is a successful process calculation, the miner or the user gets rewarded with Bitcoins. When a successful operation is executed, new blocks are created.
Like any other blockchain, Bitcoin’s blockchain entails complex mathematical problems that are to be solved. Only after this, a transaction is considered to be successful.
There are instances when transactions fail. The reason is that the mathematical problems are rooted in cryptography. Consider cryptography as the writing and solving of codes.
Does the question arise that how will a Bitcoin miner work when transactions fail?
Generally, it takes 10 minutes for a calculation to succeed. Once it happens, a new block is added to the blockchain, and the miner gets the payoff.
The overall design of the Bitcoin system ensures that there are only a limited number of Bitcoins available. It is the primary reason why the rate of transaction success is kept at a steady pace. The mathematical equations are gradually getting more difficult with time.
How to do it?
The simple answer here is to set up your own data center where you will mine Bitcoins. However, it must be added that it is a costly option. What can be a viable alternative are the third party mining services. Here one can mine for Bitcoins without setting up a data warehouse system.
All that one need is a computer along with the software which will enable you to run the Bitcoin’s blockchain network. Once connected to the blockchain, you can solve the mathematical problems and work as a professional blockchain miner.
However, there will be different computers working simultaneously working on the same set of problems. The efforts are with the hope that solving the problem will create a new blockchain block, eventually leading to winning some Bitcoins. It is a risky process. There is a higher possibility of spending your time and energy at solving those mathematical problems and finally being unsuccessful.
If you decide to mine Bitcoins on your computer, there are more chances that your efforts will go waste. One has to opt for specialized hardware explicitly meant for the purpose if one is serious in his pursuit.
There are specialized computers that can cost thousands of dollars per machine. These work the best and turn out to be cost-effective in the long run. Mind you, and it is an electrically extensive process. Those computer machines eat a lot of power. You also need a Bitcoin wallet to store the Bitcoins that you will earn. The wallet is digitally encrypted and very secure.
It is wise to join a mining service provider and a mining pool. To join it, there are expenses involved approximately 2% of the total earning.
How much can you earn?
Like any other market, Bitcoins also have a downward cycle. These fluctuations are part of any business. Always keep in mind that Bitcoin mining is crowded and hence fiercely competitive. However, the scope and space for a competent entrant are still there.
It was once a lucrative practice. These were the times when blockchain’s mathematical problems were not as complicated, and not much computing power was required. Today, the scenario has changed, and the competitions from big mining data warehouses are immense. It is now a filed left exclusively for such conglomerates. For individuals, there is not much money left.
While for individuals, Bitcoin mining is challenging, Bitmain is still profitable. Its reporting enormous profits, and that garnered many eyeballs.
To summarize, the big companies with deeper pockets are better poised to earn profits. For individuals, this niche is finished for them. Size is the key here, as the algorithms get more complicated, the computing power is only going to heighten.