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What is Bitcoin mining?
In order to understand what Bitcoin mining is, we need to understand what Bitcoin is. Bitcoin can be termed as a digital currency with no physical form which uses cryptography and blockchain technologies to facilitate its transactions.
Bitcoin mining basically is the process by which the above transactions are verified (by a group of supercomputers under the command of miners) and added on to the blockchain which is the public ledger of Bitcoin. It is through this process that new Bitcoins are released in the form of rewards to the fastest supercomputer to solve a complex arithmetic algorithm generated by the Bitcoin network.
Here is what Bitcoin mining involves:
- The use of dedicated hardware with complex arithmetic solving capabilities.
- A well-informed miner (who knows how to go about it)
- The Bitcoin network (provider of the mathematical problems)
- Transactions (Where arithmetic problems are generated from)
- The Blockchain/public ledger (Where a transaction will be published after a successful mine)
How Bitcoin mining works?
The Bitcoin network is set in a way that allows mining computers to access and collect pending blocks (Bitcoin transactions) after the span of every ten minutes and turn them into complex mathematical puzzles.
After the complex mathematical puzzle is made, all miners available compete to solve the arithmetic using supercomputers. The miner who solves it first gets the reward but not before the other supercomputers verify that the solution is indeed the correct solution. The mined block will wait for ninety-nine more blocks to be added to the public ledger before it can be added.
The miner’s fee has reduced significantly over time and it is estimated that it will keep on reducing. It was initially 50BTC but at the moment it stands at 12.5BTC per successful mine.
Here is the Bitcoin mining process:
- Transactions between addresses (Bitcoin users) are collected into a block
- The block is put pending with other blocks for ten minutes awaiting verification
- Miners are granted access to the blocks after every ten minutes
- The Bitcoin network together with the supercomputers aid in the generation of an arithmetic puzzle for each block
- Miners compete to solve the arithmetic puzzle so as to earn rewards
- The fastest miner to solve the puzzle is awarded and the solution is verified by the other supercomputers
The verified block of transactions is finally added to the Bitcoin Blockchain/ public ledger.
Can I mine Bitcoins?
Mining Bitcoins is a complex process which requires possession of certain pricy tools and explicit information on the operation of the machinery in order to successfully mine Bitcoins.
In short, yes you can be a miner but only if you possess the technical skills and the right equipment. If one is to have the right machinery and no knowledge of the mining process then loses are sure to be incurred. You will need certain software in order to initiate mining. The software is not cheap, so if you purchase and do not know how to use, then that’s a loss on your side.
You need an internal drive to learn the technical process so that your mining process will run as smoothly as you had hoped and earn you some BTC.
There was a time when you could mine Bitcoins simply by using the computational power that a middle-high end laptop provides. Today, you will need to have an industrial grade set up with a high level of computational power and electricity costs ranging up to a million dollars. Since the difficulty of mining Bitcoins is constantly increasing, you will have to compete with mining farms that are extremely large such as the two biggest setups that exist in China and Russia. These setups would be worth more than a couple of million dollars to the least.
Hence, regular people and beginner miners are better off mining altcoins such as Bitcoin Classic, Zcash, Ethereum, and others. After that, they can move ahead and exchange the altcoin for Bitcoins through a cryptocurrency exchange depending on when the time is right.
To mine altcoins, getting a GPU rig (Miner) ranging from about $1000 – $10,000 would be enough of an investment. However, since the difficulty of mining altcoins is also increasing with time, these mining rigs may not mine enough altcoins for profit in the near future. Nevertheless, you can always sell away your GPU rigs to gamers as they are always looking out for affordable used graphics cards.
Here are some of the Software and hardware needed
For Mac Os X- RPC Miner
Bitcoin mining Hardware
- Application specific integrated circuit (ASIC)
- AntMiner S7/S9
- BPMC Red Fury USB
Learn more about bitcoin mining hardware.
In this field of Bitcoin mining, there are a handful of very successful Bitcoin miners. Most of which are companies dedicated to mining. They include the following:
AntPool- This is a Chinese hardware mining company that claims to be the largest cloud miner. It is also the best Bitcoin miner according to many well-placed industry players. It is run by Bitmain which was founded in 2013. Its technology is responsible for over 56% of Bitcoin mining globally.
DiscusFish/P2Pool– Operated By two Chinese technology companies, it boasts of 16.49% of the Bitcoin mining globally. In July of 2017, they created the largest Bitcoin transaction as a defensive mechanism against a spam attack.
Bitfury– This is one of the best-funded hardware mining companies. It managed to come up with $20million in July of 2017, a very profitable year.
BTC China Pool– It is one of China’s largest crypto exchanges. It launched into mining late 2014 and has already made a name for itself. Being an exchange company, it stands to have valuable information that would help it beat its competition.
BW Poll– This ‘incognito’ company accounts for 7.68% of the Bitcoin mining globally yet its transparency is still questionable as it is rarely involved publicly.
USB Bitcoin miners – they are a kind of mining that utilizes USB devices like Sapphire miner and GekkoScience. They are good for beginners who want to learn about mining.
Bitcoin mining software
In order to partake in any kind of crypto mining, there is special software you require to have. They simply help you facilitate the mining process. A supercomputer without this crucial software can’t do much.
Some companies provide certain software that allows you to mine and store your Bitcoins at the same time. In short, they act as a mining tool and as a wallet; they include Breadwallet, Copay, and Armory. Other crucial software has been listed above. Here is an addition to the list:
- RPC Miner
Don’t forget to check our ASIC miners guide.
How to mine Bitcoins with cloud Mining
Cloud mining is using shared processing power, without involving your hard disk, run from remote data centers.
Here are types of cloud mining:
- Hosted mining
This is where you lease a mining machine which has been hosted by a provider. The physical distance does not matter, your internet connection, however, has to be top notch.
- Virtually hosted mining
This is where a user has created a general purpose server, which can be accessed virtually and allows users to install their preferred mining software. Think of it as renting a super hard disk for a limited time.
- Leased hashing power
This is the most commonly used method for cloud miners. This is because you do not have to dedicate a physical or virtual computer simply by leasing an amount of hashing power.
Disclaimer: You, however, do run a high risk of fraud and or funds mismanagement among other mishaps while dealing with cloud mining.
Is Bitcoin mining profitable?
Bitcoin mining is profitable in the long run as its value is ever appreciating. It struck a record high value recently and all signs indicate that it will keep rising in value. This means that a few mining successes and you will be ripping profits beyond your imagination.
When it comes to time, there is no standard time that it will take you to mine a Bitcoin; however, there are factors that contribute to the time span. They include:
- Difficulty level– In terms of the arithmetic problems developed over time. Lately, the difficulty level has been appreciating due to certain factors. The most common being security and an increase in the number of miners in the network.
- Computer power– Your super computer’s general power will play a major role in the time it will take you to farm Bitcoin and register your first mine. The more powerful it is, the better your chances are.
- Software and hardware– These are key components when it comes to mining generally. You need to select the software and hardware that have the highest success rate. This might mean that you spend an extra buck but in the long run, it will be totally worth it.
Bitcoin mining terms you should know
Address– In comparison to a bank, this would be your Bitcoin account number, you will use it to pay, send and receive Bitcoins.
BTC– This is the commonly used unit of measure when referring to Bitcoins e.g. 1BTC
Block-This is a record within the blockchain, containing a list of transactions that have been verified through mining.
Blockchain– This is the public ledger where all Bitcoins transactions are stored and cannot be tampered with.
Cryptography– This is a mathematical system that allows the creation of a high level of security through mathematical proof. In simple terms, it is a high-level form of encryption.
Hash rate– This is the standard measuring unit of Bitcoin network’s processing power.
Signature– A mathematical cryptographic mechanism that allows a user to prove ownership
Wallet-An online or offline location specifically made for the purpose of storing Bitcoins, much like the physical wallet stores money. Learn more about bitcoin wallets.
Bitcoin mining difficulty– This is a scaled rate at which the difficulty of mining Bitcoins over time is determined. The rate as is expected has always been rising, that means that the mathematical problems have been increasing in complexity over time.
Bitcoin mining pool– This is when a group of miners pull their resources together and share their processing power over a secure network so as to increase the chances of success and hence split the reward.
Bitcoin mining apps– There are apps dedicated to Bitcoin mining but they will take you some time before they yield you any fruits. They include; BTC mining, Bitcoin miner, ARM miner Bitcoin, Free Bitcoins etc.
Bitcoin mining rigs– This is a dedicated computer system that is used for mining Bitcoins. They have a physical form and simply require to be integrated into the computer. They include:
- 8core EFGA Bitcoin Miner
- 2x Gigabyte HD7970
- 4X HD5870 Miner
- My Hobby Rig
- Sci-Fi Mike Miner
- Little farm
- The superior Frame
Is Bitcoin mining legal?
This will depend on your geographical location. In most places on the globe, it is legal. In some places which have banned the use of cryptocurrency, it is illegal and ill-advised to engage in it. Such places include; Bangladesh, Bolivia, Ecuador, among others.
In conclusion, Bitcoin mining is a complex yet profitable venture that would most certainly reap you rewards 2-3 years down the line. You have a better chance of being successful if you keep yourself informed at all times about Bitcoin. Good luck to all prospective miners and remember to stay alert!