Bitcoin Mining Basics: What Is It And How To Do It

No doubt:

Bitcoin revolutionized the world of payments and transactions when it was released back in 2009 by the mysterious Satoshi Nakamoto. People argue whether this is a real person or just a nickname, but what really matters is the impact the most popular cryptocurrency has had on our world.

Does this sound familiar?

Bitcoin is a decentralized cryptocurrency which means that there is no central authority to dictate the rules. In addition, it is safe, secure and faster than the conventional methods of making transactions. It’s also a great asset to invest in. Its price reached the staggering $19,150 per coin.

Haven’t you wondered where the coins come from?

How do people have 10, 100 or 1,000 coins?

Certainly, they can buy them but that doesn’t answer the question. It all starts with bitcoin mining. Today’s article will try to explain what this process is, how it happens, provide examples and other specifics.

What’s Bitcoin Mining?

Most people who have Bitcoins have not mined them; they have bought them on an exchange. It’s important to note that the number of Bitcoins is preliminary set – 21,000,000. By October 22,  16,639,113 have been mined. All those coins were “created” by someone using the process of mining.

Technically speaking, actually, the process involves verifying transactions and recording them in the blockchain, which consequently releases Bitcoins.

In a nutshell, Bitcoin mining is a process that serves two purposes:

  1. Releases new coins
  2. Verifies transactions

What’s Mining Difficulty?

If you are eager to start mining, this is a term you have to know and understand very well. Each process of mining has its difficulty. According to the Bitcoin Wiki, a difficulty “is a measure of how difficult it is to find a hash below a given target.” Well, that most probably doesn’t mean anything to you, especially if you are not a tech-savvy person.

So what’s it all mean?

The idea is somewhat complex, so I would give an example in order to make it much easier to understand. In the previous paragraph, I explained what the mining process is – you have miners and you have a mine. In our case, the people who verify the transactions are the miners and the blocks on which they record them is the mine.

The difficulty determines how easy is for a person to find and create a new block on which to record transactions. The higher the difficulty, the more time the process needs.

Block Rewards

The people who take part in the process of mining are compensated for their input – they receive freshly forged coins as well as a percentage of the or the whole transaction fees.

Let see exactly how this works:

Imagine a miner discovers a new block and creates it. The whole network has agreed on the number of Bitcoins which the miner will receive. Currently, this is 25 Bitcoins. And at the current price of the coin ($5,720), this makes $143,000 and is a great incentive. Keep in mind that the number of Bitcoins as a reward changes every 210,000 blocks.

As an additional incentive, if a miner includes a transaction on the new block, they will receive the fees the sender has paid.

Bitcoin Mining Hardware

Ok, you have a basic idea what mining is and the benefits it can have to miners.

The question is: how should I start it?

To begin with, you need to equip yourself with a suitable hardware. Nowadays, it’s no longer possible just to sit down and use your PC to mine coins since it consumes a lot of electricity and energy.  Today’s most spread method is by application-specific integrated circuit (ASIC) chips which mine coins much faster and consume much less power. There are different companies which produce high-quality products.

According to the website bitcoin mining, there are three best products on the market and they are AntMiner S7AntMiner S9, and Avalon

Bitcoin Mining Software

Let’s imagine you have your own mining hardware. The next step is to connect your hardware to the Bitcoin database and actually start mining. Only software can achieve that. Let’s take a look at the most common ones:

Bitcoin Miner – this software is compatible with both Windows 8.1 and 10. It’s free user-friendly and power-efficient. There is an option of pool mining.

GMiner – This one of the most common software and can be used by both Windows and Linux operating systems.

EasyMiner– works on both Linux and Windows. You can choose between solo and pool mining.

Bitcoin Mining hardware

Bitcoin Cloud Mining

It somehow combines the previous two: Bitcoin mining hardware and software. As a user, you can buy mining capacity without having to buy hardware and install software. This mining capacity is part of database somewhere else and the whole process works remotely.

So where can you do it?

Some of the places which you can check out for such services are Hashflare, Genesis Mining, Hashing 24 and more. Before you purchase, research carefully if the site is credible enough.

A note of warning!

There are many scams which pretend to be cryptocurrencies or Bitcoin cloud mining providers. Before you purchase anything,  research carefully if the site is credible enough.

Benefits of Bitcoin Mining

Now that you have a genera idea of what Bitcoin mining is, let’s list the major benefits:

  • Mine coins and benefit from their value
  • Earn money from the transactions you verify
  • Join a huge network of users
  • Benefit from the cryptocurrency Bitcoin
  • Make smoother and safer transactions
  • All the information is transparent

Bottom Line

Bitcoin mining is the process of creating new coins and joining the big Bitcoin family. In order to start mining, you have to know how the process works. Then you can buy yourself suitable hardware and software or cloud mining services and start a “mine” of your own. Not only can you benefit from the current value of Bitcoin but also invest into the future of payments.

 

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Russell White

Writer and researcher, PhD in Accounting at UCLA. From 2014 - 2016 I served as a contributor to the free Oxford Club newsletter and the Money Morning and Investment U websites. Twitter: https://twitter.com/allenwhite3004

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