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When you hear about Bitcoin mining, you plan to dig up some coins. But Bitcoin is not physical, so why do we call it mining? Where do bitcoins come from? With paper money, a government decides when to print and distribute money. Bitcoin does not have a central government. With Bitcoin, miners use special software to solve math problems and receive a certain number of bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine. The main purpose of mining is to allow Bitcoin nodes to reach a secure and inviolable consensus. The mining of bitcoins is so called because it resembles the mining of other raw materials: it requires physical effort and gradually creates new currencies available at a rate close to that of products such as gold.
A Bitcoin node is a computer that runs Bitcoin software and helps keep Bitcoin running by participating in the information relay. Some nodes are mining nodes. These group the pending transactions into blocks and add them to the blockchain. How do they do that? By solving a complex mathematical puzzle that is part of the bitcoin program and including the answer in the block. The puzzle to solve is to find a number that, combined with block data and passed through a hash function, produces a result within a certain range. How do they find this number? By guessing at random. The hash function makes it impossible to predict what the output will be. Thus, the miners guess the mystery number and apply the hash function to the combination of this guessed number and block data. The first miner to get a hash in the desired range announces his victory to the rest of the network. All other miners immediately stop work on this block and start trying to find the next mystery number. As a reward for his work, the victorious miner receives new bitcoins.
Blockchain is nothing more than keeping a large network book of transactions. Users having equal rights on the network, it becomes necessary to put in place a mechanism guaranteeing the irreversibility of transactions and the ability to check their validity by each member of the network. Such a mechanism is the mining process. It allows all users of a distributed cryptocurrency network to verify transactions and add them to blocks.
Despite the profit potential of Bitcoin mining, the initial energy cost of your mining equipment can actually hurt your bank account. Choosing the wrong mining hardware can cost you more money than the amount you earn. Hobby Bitcoin mining can still be fun and even profitable if you have cheap electricity and get the best bitcoin mining equipment. Since it is now impossible to profitably mine bitcoins with your computer, you will need specialized hardware called ASIC. Think of a Bitcoin ASIC as specialized Bitcoin mining computer, bitcoin mining machinery. Nowadays, all serious bitcoin mining operations are performed on hardware dedicated bitcoin operating ASICs, usually in low-cost thermal control data centers.
Canada allows the use of digital currencies. However, cryptocurrencies are not considered to be legal tender in Canada. Canada’s tax laws and rules, including the Income Tax Act, also apply to cryptocurrency transactions. The Canada Revenue Agency has described cryptocurrency as merchandise and has stated that the use of cryptocurrency to pay for goods or services should be treated as a barter transaction. Cryptocurrency can be used for profit (as a business) or as a personal hobby (non-taxable). If the taxpayer carries on a business in a commercial manner, the income of that business must be included in the taxpayer’s income for the year.
There is currently little evidence to suggest that Bitcoin contributes directly to climate change. Even assuming that Bitcoin mines were exclusively coal-fired – a very unrealistic scenario given that a sizeable number of plants operate exclusively from renewable sources – total carbon dioxide emissions would not exceed 58 million tons of CO2, which would correspond to approximately 0.17% of the world’s total emissions. This does not mean that environmental concerns about Bitcoin’s electricity consumption should be ignored. However, the current figures should be put into perspective: the available data show that even in the worst case scenario (coal-only mining), Bitcoin’s environmental footprint remains at best marginal. A recent study by CoinShares, a cryptocurrency asset management and analysis company, found that most of the electricity used by Bitcoin actually came from clean sources, such as wind, solar and hydro. The only amount of electricity consumed each year by domestic appliances still on but inactive in the United States alone could power the Bitcoin network for 3.1 years.