Basics You Need to Know About Bitcoin Mining: Give It a Read
What is Bitcoin Mining?
Nowadays, cryptocurrencies have become popular and the talk of the town. There are many cryptocurrencies currently being used all around the world. Among those, Bitcoin is one that has created a huge buzz. Bitcoin mining refers to the creation of bitcoin. In the case of paper money, there is proper authority. The authority takes the decision of printing and distributing money depending on the situation. But, in the case of bitcoin, you won’t find a proper authority responsible for it. Bitcoin mining means supporting the bitcoin environment and keeping it secure through a process. The details are discussed below.
Bitcoin Mining in Details:
Bitcoin mining actually depends on three aspects of the whole bitcoin network. Those are-
- Issuance of new bitcoin
- Confirming the transactions
- Ensuring the security
- Issuance of New Bitcoin Issuance of bitcoins depends on solving math problems. Miners need to have a smart setup of hardware and software that allows them to solve tough and complex problems of math quickly. There is no scope of cheating. Depending on the computing power them and their setup, miners have to earn bitcoins. If a miner can successfully solve the problem before other miners, he is rewarded a certain amount of bitcoin. Thus the miners earn newly issued bitcoin and add the coins to the bitcoin environment.
- Confirming the Transections: Another responsibility of the bitcoin miners is looking after the bitcoin transactions happening around the world. The miner has to verify the transactions and bundle those into blocks. When the transaction is added to a block, it is officially added to the blockchain system of the bitcoin environment. However, ‘solving a mathematical problem’ thing is a part of confirming the transactions. It is called the Proof of Work. It is used to embed the block into the blockchain network.
- Ensuring the Security: Miners ensure the security of the system through mining. The more miners join the network, the more the security is. This is because the hash power is spread to the miners. To reverse any transaction, 51% hash power is needed. As the number of miners increases, summing up 51% hash power becomes difficult. As a result, the environment remains safe, and no reverse-transaction happens.
What is Proof of Work?
The Proof of Work is the algorithm in the blockchain network. In the network of Bitcoin, this algorithm is used to approve transactions and create new blocks in the chain. Bitcoin miners try to solve the algorithm before others using their setup so that they can complete the transaction and get a reward. Proof of Work is used in the blockchain for two main reasons. The first one is security. It ensures strong security because it needs a huge computational power and a long time to get through it.
As a result, if someone wants to attack, he’ll need to invest a lot to make the attack. And still, there is a chance to fail. So, the system is safe. Another reason is the mining possibilities. To form new blocks through solving the puzzles need brain and computational power. So, if Proof of Work is added to the chain, the decision-makers will be some talented persons. Thus, the possibilities of mining will increase too.
How to Start Bitcoin Mining?
Actually, starting bitcoin mining is not a good choice nowadays. Now miners work with a setup that you can’t compete with. However, if you want to start mining as a hobby, I can show you the path. To start Bitcoin mining, you’ll have to go through a few steps. These are given below-
Step 1- Know whether mining is legal or illegal in your country: This is not a matter of concern in most countries. But there are some countries where bitcoin mining and exchanging is not legal. If bitcoin mining is legal in your country, consult a lawyer and know what you’ll have to do if you start mining in your country. Know everything and make sure you’ll be able to fulfill everything. If you can, proceed further.
Step 2- Make sure that bitcoin mining is profitable for you: If you want to start bitcoin mining, you’ll have to invest a huge amount of money, especially in the hardware. So, you’ll have to make sure that mining will be somehow profitable for you. If you start mining without knowing much, it won’t be profitable for you. But the amount calculated by the calculator won’t match the real situation. It might be worse or may get better. Factors related to bitcoin mining are constantly changing. So, getting the exact result is not always easy. Do research, know more about bitcoins, and know the factors that change the environment. Then, proceed to step 3.
Step 3- Set up the required hardware: Bitcoin mining needs really powerful hardware. Nowadays, mining with a computer or laptop doesn’t bring a good result. Even you can earn a total of zero in a year if you use your home desktop or laptop. You’ll have to add powerful additions to the computer. However, mining with a computer might not be a very good decision. Try to have an ASIC miner. These are computers with the intention of only mining. You can get one of them if you are serious about mining.
Step 4- Select a mining pool: Mining pools are small groups focusing on finding blocks in the chain. You can contribute your hash rate to the pool. When the pool finds a block, you get a percentage of the bitcoin earned. The percentage depends on the percentage of hash rate you share. You can also go solo, but you can’t do anything if you go solo. With a low hash rate of a solo miner, it is almost impossible to find a block. If you can’t find a block, you won’t earn anything. So, it is better to join a pool.
Step 5- Get the required software: Bitcoin mining software helps you with everything. You can get connected to the pool, shows your contribution to the pool, how much you’ve earned, and the Bitcoin address where the pool will send the payouts. There is various mining software available for Windows, Mac, or Linux. You can choose one from your preference or pick the suggested one from the pool.
Difficulties in Bitcoin Mining:
I’ve already said a few times that mining bitcoin is not an easy task. Throughout the whole article, you’ve read some difficulties with bitcoin mining. Now I’m going to talk about a few more difficulties.
- Bitcoin Network Difficulty Metric: It is something that measures how difficult it is to find a block. Day by day, finding a block is getting more difficult. When new miners join mining bitcoin, the rate of block creating goes up. To keep the block generation low, the difficulty goes up. Any block created by a miner that doesn’t meet the difficulty target will be avoided and won’t provide any value.
- The Block Reward: When a block is discovered, the discoverer gets a reward of a certain amount of bitcoin. The reward becomes half every 210,000 blocks. So, the difficulty is rising, and the reward is getting cut to half. The situation is being difficult day by day. So, if you want to start, you’ll have to keep this in mind too.