Month: August 2019

There are a few reasons why someone would opt to start mining Bitcoin, and they complement each other very well. Ultimately, the reasons to mine bitcoin fall into two important camps: because it’s profitable, and because of the potential of Bitcoin.

The profitability of mining Bitcoin is an attractive reason to get into the practice. Mining a new block of Bitcoin rewards the successful miner 12.5 Bitcoin at the current rate, allowing the miner to profit from that return. The more hardware and resources a miner has to devote to this task, the more likely they are to receive that reward, incentivizing miners to invest into their operations to make it a likely outcome.

Beyond the block reward, as block sizes scale and are capable of handling more transactions, transaction fees are becoming a big financial incentive to confirm blocks. While every individual transaction carries a small fee, having thousands, and eventually millions of them in each block can start to add up to a nice little profit for those involved in the mining business.

The potential of Bitcoin is another incentive for the Bitcoin miner. The more resources that are put towards mining the Bitcoin blockchain means that the blockchain is more secure, as potential hackers or double-spenders can’t easily overcome the hash rates generated by honest miners. By contributing hash power to the blockchain, miners are making it more secure, and creating more confidence for future users to use Bitcoin without fear of having their transactions suddenly reversed.

This creates a positive feedback loop that’s beneficial to the miner. As the blockchain becomes more secure from the contributions of more and more miners, increased confidence amongst businesses and the public leads to increased adoption. That in turn creates more transactions.

Now that Bitcoin, championed by Bitcoin SV, is pursuing bigger block sizes, more transactions fill each block, resulting in more transaction fees for the miners to collect. That provides an additional profit investive, and a great reason to continue mining. So even if block rewards halve in the future, or all blocks are mined, it remains economically viable to mine Bitcoin for transaction fees.

All talk of profits aside, mining Bitcoin is around creating a new economic model of the future, where peer to peer transactions, without the need for trusted third parties, become the norm. While Bitcoin was designed for miners to profit from this activity, the ultimate motivation to mining is the belief that it will create a better, more inclusive economic future for the world.

To the uninitiated, Bitcoin mining can seem like a confusing process. The very concept of ‘mining’ a currency is one that leaves most beginners understandably stumped.

With fiat currency, new coins are minted centrally and introduced to the money supply—usually at the behest of a central bank or government. But in the world of cryptocurrencies, it’s the process of Bitcoin mining that achieves the same outcome.

Bitcoin mining is the process by which new tokens are created, or rather, discovered. It’s a computational process through which miners can reveal new coins, increasing the available supply of cryptocurrencies such as bitcoin.

Rather than new coins coming from a centralized issuer, bitcoin mining is a decentralized process, in which anyone with the right hardware can uncover new tokens from a predetermined total set.

This delivers in-built scarcity which helps ensure cryptocurrencies hold value, while ensuring new coins are delivered incrementally over time (instead of flooding the market with excess supply, which would depress value).

The process of Bitcoin mining is in reality one of cryptographic problem solving. Miners run computations, often powered by specific mining hardware known as ASICS, that try to solve these cryptographic puzzles in return for payment—a so-called “mining reward.”

In turn, miners are used to verify transactions and prevent double-spending, providing the essential decentralized basis on which many cryptocurrencies exist.

This problem solving function is known as “proof of work,” where bitcoin miners are essentially trying to guess a 64-digit hexadecimal number known as a “hash.”

Mining hardware processes at a rate of megahashes, gigahashes or terahashes per second, which reflects the number of guesses per second the hardware is capable of processing towards uncovering this number.

The process of mining new coins is essentially one of guesswork, and the more computation power you have in your locker, the greater your chance of mining new coins.

Viability therefore becomes a question of offsetting the capital cost of hardware and the cost of electricity to power the mining process with any mining rewards earned.

The concepts in Bitcoin mining are in essence fairly simple—it’s often just the lingo that makes it inaccessible at first glance. Once you know your hashes from your mining rewards, you’re only a few steps away from setting up your own mining operation, and seeing whether you can mine some fresh cryptocurrency along the way.

For those considering getting into Bitcoin mining for the first time, or for those who are already wading in but feeling a lack of confidence, there are several lessons that can be learned from the veterans in the field. Of course, everyone wants to know what they must do to succeed and make a profit, but just as important is to learn what not to do to avoid catastrophe.

First of all, if you’re going to be mining and earning Bitcoin, it’s important not to store them all in the same wallet. Although wallets are typically built to be secure, even the best wallets can be lost or destroyed. For that reason, keep wallets backed up, keep some offline in cold storage, and don’t store all your Bitcoin in one place.

Similarly, whatever machine is being used to mine should be kept as secure as possible. If total strangers have physical or remote access to your source of wealth, there’s always a chance they’ll sneak some out. So don’t keep your mining rig in a location where the public, friends, coworkers or even untrusted family can get at it. Similarly, don’t install anything on that device which could make it vulnerable to digital attacks. Illegal and untrusted software could introduce vulnerabilities, and then your Bitcoin is just a couple of steps away from being forcibly withdrawn from your wallets.

Maybe you don’t want to operate your own mining hardware, but rather invest in the mining operation of someone else. If this is the case, be very wary of the possibility that any mining investment opportunity could be a scam. If the person or business you are giving money to isn’t of the highest reputation, and can’t prove a history of Bitcoin mining success, you might be throwing your money away. The golden rule is if it sounds too good to be true, it probably is.

More than anything though, don’t dive into the Bitcoin mining world without doing your homework. Many basic questions need to be answered to determine if you can set yourself up well to make a profit at mining, and then constant awareness of current news and trends is vital to stay on top of it. If you haven’t carefully looked into energy costs and the efficiency of hardware available to you, you aren’t ready to start mining. If you can’t stay well informed of price trends and the latest news in the industry, things can go south very fast.

Bitcoin mining can be a very profitable endeavor if done right. As long as you stay well informed, avoid potential disasters with some common sense precautions, and stay clear of thieves and scammers, it’s an enterprise that can help propel the world towards a new digital currency while making a few bucks for yourself.

As we’ve previously discussed, Bitcoin miners are some of the most crucial network participants. Despite this, Bitcoin mining is one of the most misunderstood concepts there are in the cryptocurrency ecosystem. Here are some of the most common fallacies about Bitcoin mining.

Miners only benefit themselves by earning block rewards

In recent times, Bitcoin mining has become a huge industry worth billions of dollars. Huge corporations have set up mining operations, with ASIC producers such as Bitmain blowing up in profitability. This has led to the notion that Bitcoin mining is purely an economic activity for the miners.

However, this isn’t so. Bitcoin mining is a crucial part of the Bitcoin ecosystem.

When Bitcoin was launched over a decade ago, Satoshi Nakamoto’s idea of a miner wasn’t as much for the financial gain but for the security of the network. Satoshi referred extensively on the Bitcoin whitepaper to miners as nodes on the network. As the value of Bitcoin blew up in the years following its launch, many looked at mining as purely an economic activity. However, miners do much more than earn block rewards. They validate data on a computer network, running an open consensus mechanism.

Mining Bitcoin ruins your computer

This is another popular fallacy. Many believe that running the GPU consistently over time to mine Bitcoin will ruin your hardware. However, it has been proven that as long as you don’t let your GPU overheat, it will last you for years.

Mining Bitcoin uses the hardware in the same way as gaming does. As a matter of fact, some intensive games have been found to task the GPU more than Bitcoin mining does.

To ensure that your hardware lasts for long, always ensure the mining rig is well ventilated to avoid overheating. It also helps to install a cooling system.

Energy use rises as the number of transactions increase

This is one fallacy that has been spread by mainstream media outlets that don’t understand how Bitcoin mining works. According to them, with each increasing transaction, the amount of energy used in the mining process increases. Thus, once Bitcoin achieves its true purpose of being the global financial system, the energy being used in the mining process will be more than is used in any other industry.

However, this isn’t true. The energy used to mine Bitcoin relies on the competition between the miners, not the number of transactions. The validation of transactions is in itself a small task which wouldn’t take up much energy. However, since Bitcoin is a very valuable asset, millions of miners compete across the globe to be the ones who get the rewards. This competition drives the mining difficulty level up, requiring the miners to use more energy for the task. While this competition increases the energy use, it also ensures that the Bitcoin ecosystem is secure.

Mining block rewards are constant 

Mining is an economic activity for many, with vast resources going into the industry. Thus, the miners must be incentivized to keep up the mining for the security of the Bitcoin network. While some of the reward comes in the form of transaction fees, the main incentive is the block reward.

Block rewards halve every four years. Bitcoin has a hard cap supply of coins which stands at 21 million. Once these coins have been mined, probably a century from now, the miners will have to rely on transactions fees. However, after every four years, the block reward halves automatically.

Mining Bitcoin is illegal

Despite Bitcoin being around and revolutionizing finance for over a decade, governments are still trying to figure out how to regulate the industry. As such, many people are concerned that mining Bitcoin could be considered illegal in their jurisdictions.

However, no government has explicitly stated that Bitcoin mining is illegal. Even in countries where ICOs and cryptocurrency exchanges have been banned, miners still haven’t had any laws enacted against them. A good example is China, a country that has been anti-Bitcoin for quite some time now. Yet, despite this, China still has the highest concentration of miners globally.