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.