Even if you don’t know anything about the crypto world, you’ve doubtlessly heard about the term “Bitcoin mining.”Still, most people don’t know how crypto mining really works.
In this article, we’re going to try and shed some light on this popular subject, showing you what Bitcoin mining entails, why it’s necessary, and why people may want to do it.
What Is Bitcoin Mining?
Before we start diving deeper into the world of Bitcoin mining, we should explain what the term means.
Bitcoin and other cryptocurrencies are considered innovative for one main reason: the transactions involved are legitimate, valid, transparent, and private, if necessary. What crypto miners do is offer their computing device’s processing capacity to monitor and legitimise worldwide Bitcoin transactions. This is the essence behind Bitcoin being a “decentralised” currency.
Despite its namesake, Bitcoin mining doesn’t have anything to do with mining, not even proverbially. Contrary to the common misconception, Bitcoin miners don’t “search” for Bitcoin – they get rewarded for offering their computing capacity to help validate crypto transactions.
Bitcoin mining also has to do with verifying “blocks” on the blockchain. Once a miner has verified 1 MB of data (yes, we’re talking about one megabyte), they are rewarded with a certain quantity of Bitcoin. It was the creator of Bitcoin, Satoshi Nakamoto, who set this limit. A higher limit could mean quicker processing and verification.
What About the Reward?
Naturally, people aren’t just offering their computers and the vast processing power for the sheer excitement about blockchain technology. They do it for the prospect of getting rewarded for it.
However, verifying a 1 MB block doesn’t automatically award you with Bitcoin; it makes you eligible for the reward. Crypto mining boils down to two factors: effort and luck. In other words, the first condition is verifying around 1 MB worth of transactions. The second condition for getting rewarded in Bitcoin is being the first miner to come up with the right answer for a numeric problem. This is commonly referred to as “proof of work.”
What Numeric Problem?
The whole essence behind Bitcoin mining is answering a numeric problem. But what kind of a problem are we talking about?
Fortunately, you don’t have to have advanced mathematical experience to solve such a problem. There’s a common misconception that miners are trying to solve complex mathematical problems. Actually, a miner is trying to be the first one to come up with a hexadecimal number of 64 digits. This number is referred to as a “hash.” The whole solution to the numeric problem is guesswork rather than complexity.
The bad news here is that the number of guesses is in the trillions. To find the solution to the 64-digit number quickly, you need a ton of computing power – a high “hash rate.” This hash rate is measured in MH/s (mega hashes per second), GH/s (giga hashes per second), and TH/s (tera hashes per second). The more hashes per second you have, the better your chances are of successfully “mining” Bitcoin.
Mining Impacts Bitcoin Circulation
The most important purpose of Bitcoin mining is to support the entire Bitcoin ecosystem. However, there is another important purpose that Bitcoin mining fulfils–mining is the only way to increase the global supply of Bitcoin. When mining, you are actually “minting” Bitcoin.
Satoshi Nakamoto created the first-ever block of Bitcoin. Every block after that was minted by miners.
But what does this have to do with Bitcoin’s supply? Well, there’s a supply cap for Bitcoin of 21 million. As of the end of 2020, there is 18.5 million Bitcoin out there. So, you’d imagine that getting to 21 million would be a matter of a few years. However, the rate of mined Bitcoin is reduced over time, meaning that the final Bitcoin won’t be mined before the year 2140.
How Much Can You Expect to Earn?
Back in 2009, when Bitcoin became a thing, each successfully mined block would earn you 50 BTC. This might be a whopping amount of money today, but 50 BTC had almost no value back then.
Approximately every four years, Bitcoin halving occurs, where the reward of successfully mining one block of Bitcoin is, quite literally, halved. In 2012, after the first halving, the mining reward was reduced from 50 BTC to 25 BTC. Then, in 2016, it was halved to 12.5 BTC, and, as of May, 2020, the reward for mining a block of Bitcoin is 6.25 BTC. No one can pinpoint the date of the next halving, but it is expected to occur in 2024.
As the price of Bitcoin grows, mining becomes increasingly lucrative. For instance, at the current price of Bitcoin (around $55,000), the mining reward is almost $350,000 in Bitcoin. This is quite a whopping amount. The halving will lower the mining reward to 3.125 BTC, but if the Bitcoin price keeps soaring, this could mean one million dollars in 2024.
Why Isn’t Everyone Mining?
You don’t have to sit at your computer trying to guess the hexadecimal hash on your own. Advanced graphics cards are used for mining, for the extra processing power. So, why isn’t everyone doing it?
Well, first of all, the equipment that you’d need for mining takes quite a bit of an investment. Secondly, it also means significant power usage, to the point of simply not paying off. We’re talking about various coolers and multiple rigs. Not to mention that mining is getting increasingly difficult as time passes.
A successful Bitcoin mining operation takes a lot of calculation and planning.
Bitcoin Mining 101
We hope that we’ve given you more insight into the world of Bitcoin mining. As you can see, the Bitcoin blockchain wouldn’t work without miners. They are necessary for powering the Bitcoin transactions and bringing more Bitcoin into the supply.
Still, you can’t just jump into the world of Bitcoin mining. You have to carefully calculate whether or not it’s something that will pay off in the end. We’re talking about a significant, power-consuming investment here.
Author Bio: Hitesh is a digital marketing strategist and entrepreneur with more than 15 years of experience in digital marketing, start-ups, branding, and customer acquisition strategies. Hitesh is the CEO and Founder of Reposition Group, which specialises in digital growth strategies for companies in the cryptocurrency market such as Bitamp.com.