Why We Picked It

Why We Picked It

Why We Picked It

Why We Picked It

Why We Picked It

Bitcoin mining is the proof of work consensus mechanism that creates new Bitcoins.

Like many other cryptocurrencies, Bitcoin is based on blockchain technology. This is a distributed ledger that tracks all past transactions, a decentralized system that’s not controlled by a centralized authority.

To record transactions and encode them on the blockchain, Bitcoin miners use their computers to solve complex math equations in order to earn the right to add new blocks to the blockchain.

It takes an ever increasing amount of computing power to obtain the solution to these equations, known as a hash. Miners deploy computers, sometimes referred to as mining rigs, to solve the next hash. In exchange for their work, successful miners receive payment in the form of newly created Bitcoins.

As of 2023, a successful miner receives 6.25 BTC for solving a hash. The Bitcoin payout rate decreases over time, dropping in half roughly every four years.

Bitcoin mining is the process of solving increasingly complex cryptographic puzzles to confirm that a Bitcoin transaction has taken place.

These puzzles are necessary since there is no central authority overseeing Bitcoin’s ledger. Thus, there is no individual or group who can decide that any single Bitcoin transaction is legitimate. Instead, with the help of cryptography, a group of miners must reach consensus about any legitimate transaction.

Here’s how this works when, let’s say, Chris wants to transfer 100 BTC to Alex. The first thing Chris does is use a platform or service to initiate the digital transfer. Then, the following occurs:

• Chris’s transaction data is shared with a memory pool, which is simply a term for where Bitcoin transactions wait until they are able to be confirmed.
• Next, a group of Bitcoin miners start competing to solve a mathematical puzzle that will verify the transaction.
• The first miner who solves this puzzle will share their result with the other miners, also referred to as nodes.
• Once the necessary number of nodes—which averages out to about six—agree the solution is correct, the transaction block is verified and added to the blockchain.
• As soon as the block is added to the blockchain, the miner who solved the puzzle will receive a 6.25 BTC reward.
• Simultaneously, Alex will receive the 100 BTC from Chris.

Obviously, this is not an instantaneous process. Each transaction takes approximately 10 minutes to confirm.

To mine Bitcoin, you first need software like the programs described above to solve mathematical problems.

The programs require powerful computing hardware to solve complicated equations. In the early days of cryptocurrency, it was possible to use the standard CPUs found in regular home computers.

Today, miners install more powerful systems based on GPUs to build mining rigs. They also set up standalone ASIC-based rigs for the sole purpose of mining Bitcoin.

Expect to invest considerable amounts in electricity and hardware to successfully mine bitcoin. The rigs need to run 24-7 in order to earn more value in Bitcoin than you spend on resources.

A rig with three GPUs consumes as much energy as a medium-sized window AC unit. You also need to spend on fans to cool your systems so they don’t overheat and break down.

If you don’t want to buy the equipment yourself, you could lease it and Bitcoin mine through a cloud system.

Another way to combine resources is by joining a mining pool. That’s when you share your systems with other miners through your mining software. If one person in your pool succeeds at completing the hash, you split the value of the Bitcoin. This increases your chances of solving a hash (which is quite rare).

The amount of overhead required for Bitcoin mining will most likely cut into any profits one tries to earn by investing their time and energy in the process.

“The probability that an individual’s mining rig can solve the algorithm that results in a successful block is infinitesimal. It’s almost like winning the lottery. Instead a lot of people join mining pools. Mining pools can be profitable,” says Wade Guenther, partner at Wilshire Phoenix.

However, if you were to complete the puzzle solely on your own, at today’s prices, you would earn approximately $187,500 worth of Bitcoin. The reality of an individual solving these puzzles, though, in today’s highly competitive mining environment is unlikely.

The puzzles will more likely be solved by a mining pool, and the profits will be split among all the miners in the pool. If an individual miner can keep their equipment and electricity costs low enough, then joining a mining pool could still be profitable for them.

“Mining is very interesting but a very risky activity,” says Didar Bekbauov, founder and CEO of Bitcoin group mining company Xive. “If someone wants to do that, they have to understand that I would not advise to invest all of their money in this activity,” Bekbauov says.

Beginners may prefer cloud-based software that doesn’t require mining equipment and programs designed for more basic CPU and GPU mining.

They may also prefer software that features low withdrawal requirements, since it could take a long time to mine enough Bitcoin to make it worth using mining software with high limits.

More sophisticated miners with more powerful systems may prefer customizable programs to utilize a wide variety of mining equipment, mining pools and more ways to tailor their mining rigs.