With all the buzz around bitcoin mining, it is way easier for a newbie to mistake the world of cryptocurrency for a lucrative venture that can easily make a person crazy rich. Yes, it is possible for you to get rich from investing in the crypto world, but there are things you may need to know before you can make any move- it’s helpful!
Well, bitcoin mining is indeed a painstaking undertaking – costly and time consuming- but it can reward you sporadically. The huge rewards to hardworking or smart miners is one reason the industry has a very strong magnetic appeal. We are just about to explore how exactly does bitcoin mining work, so keep reading.
Bitcoin Mining Explained
Bitcoin mining involves updating, securing, and verifying bitcoin transactions. Unlike traditional currency which is usually created and issued by the central bank of a country, Bitcoins are issued or rather awarded to miners during and after the transaction process, when they create new blocks successfully. The transaction process is a very complex mathematical problem, which means that most transactions are bound to fail since the equations and problem solving are rooted deep in cryptography.
Miners employ the help of special software to solve complex mathematical problems and they are issued a given number of digital coins in exchange. This is just a smart and secure way to issue a digital currency and, of course, create an incentive for more investors to join and continue mining.
There are 3 or so ways through which miners obtain bitcoins: mining new coins, accepting them as a means of goods or services sold, and buying coins on exchanges. We have talked about mining new coins but to shed more light on that, it is in fact the best way to make more profits out of bitcoin mining. In simpler terms, it is a process that uses a lot of computational power to keep and verify digital ledgers.
A blockchain is simply a public distributed digital ledger on which all bitcoin transactions are recorded. IT has that name because it is technically a chain of blocks or a record of transactions made by miners in a given period of time. Do you get the idea?
Bitcoin mining is the power that runs all the bitcoin networks we hear of. Without miners, the system would easily be attacked or evn dysfunctional. The entire process of bitcoin mining is carried out by powerful computers while the role of miners is to provide security and process transactions on a bitcoin network. This way, it becomes useless and hard to attack the system.
So, what is mining doing in real terms?
Well, miners are helping secure the network and confirming new transactions, an invetsment that has them rewarded every 10 minutes. The reward is in the form of new coins. And what is the point of mining? This is a question most newbies ask every now and then.
Let us cover the three aspects of bitcoin mining. Stay tuned.
Issuing New Bitcoins
As we said a few minutes ago, the Euro, the Dollar and other traditional currenies are created and issued by the central bank of a country. The role of the central bank is to assess the economy of a country and figure out ways through which to improve the economic situation. The bank could also issue new pieces of money any time.
Bitcoin and other cryptos are totally different.
In the cryptocurrency industry, miners are usually issued new coins every 10 minutes.
Issuance of coins depends on a code, so it is difficult for miners to dup the system into creating new coins without an investment. Miners input a lot of resources, hardware, and a lot of computational power to create and update coins.
Confirming New Transactions
We stated somewhere that the bitcoin network can’t run without miners. Now, this brings us to the second role of miners in ensuring the system runs seamlessly and that is confirming new transactions.
As a miner, you include a transaction sent on the system in your block – that is the only way to secure and complete a transaction. Only when new transactions have been included in the miners’ blocks are they embedded into the blockchain.
The more confirmations you get, the more the payment you receive in exchance. For example, one confirmation is just enough to earn you a payment not more than $1000 BTC. Or 6 confirmations are enough to earn you, the miner, a payment of up to $1 million BTC.
Securing the Bitcoin Network
The last and the most important role of miners is to make a bitcoin network safe and secure for everyone to carry out their mining activities. They secure the network against hackers, hence making it difficult to alter, attack or stop.
What this means is that a bitcoin network with more miners is actually more secure than a network with fewer miners. Hash power is evenly distributed among all miners to keep the system safe and secure. However, you can easily reverse transactions if you have a majority hash power of 51%+ of the total network hash power.
How to Get Started in Bitcoin Mining
Are you planning to venture into the world of bitcoin mining any time soon?
Well, you can make it but before anything else, remember that the industry is not for the faint-hearted because it is highly specialized and requires a lot of resources. Most mining goes on in huge warehouses with lots of electricity. It is simply a bit expensive and that is one reason why beginners and investors with low budgets find it hard cracking the nut.
But let us look at some steps you should take to get up and running.
Step 1: Get a bitcoin wallet
Earnings from bitcoin mining are stored in a digital wallet such as Copay, Exodus, Coinbase, and such. You see, you can’t carry out mining without a wallet. So, just look for the best wallets and pick one that suits your needs.
Step 2: Find an Exchange
While at it, you may need to sell a few coins to cater to expenses. You may also want to buy coins. Join the most popular exchanges to avoid regrets because just like any other internet industry, the cryptocurrency marketplace is full of scammers. That is why you may want to join reputable exchanges such as Coinmama, eToro, and such.
Step 3: Get Mining Hardware
ASIC miners are special computers meant for only bitcoin mining. Don’t dare use your traditional PC to mine coins because the sad truth is that you won’t make more than a single coin per year. Or you might end up wasting more electricity only to get massive losses.
Also, get mining software that is compatible with Windows, Mac or Linux.
Step 4: Join a Mining Pool
Solo mining won’t get you more profits unless you are lucky to find a block. Also, your hardware may not be near finding a new block on your own. Joining a pool means that you are going to share the network’s hash rate with fellow miners so that you get a payout based on your contribution to the mining pool.
Of course, you can also launch a miner on your Android or iOS smartphone, but above all, ensure that bitcoin mining is legal in your country. Good luck!