News

The pros and cons of cloud mining

Bitcoin mining doesn’t have to be an individual pursuit. In fact, thanks to the concept of cloud mining, both mining operations and cloud customers can help share in the costs and rewards of the industry. Just like everything else though, there are pros and cons to cloud mining.

The first pro of cloud mining is that it reduces costs, for both the operation and the consumer. A Bitcoin mining operation that opts to offer cloud services can use subscriber funds to help off-set their operating costs, and ensure a baseline income regardless of how the market performs. For the consumer, subscribing to a cloud service means skipping the costs of purchasing hardware and infrastructure.

Continuing that thought for the consumer, anyone can subscribe for a cloud mining service, anywhere in the world. That’s a huge advantage for those who might not have the funds to start up their own operation, or those living in hot climates or energy-expensive areas where it wouldn’t be cost effective to mine cryptocurrency.

As a cloud mining contract typically offers a certain amount of hashrate for a fee, the fluctuation of the markets could then be both a pro and a con. You’re paying to mine Bitcoin regardless of the price, so if the market explodes, it can be quite lucrative. If the market tanks, it could be a losing proposition. That’s not that different from running your own mining operation, but the nature of being in a cloud contact offers less flexibility to the end user.

Giving up that flexibility and sense of control can be another con. Without having total control over the mining operation, you may be unable to switch which coin you’re mining as fast as you’d like to, and potentially give up bigger block rewards as a result. It’s less risky, but there’s a drop a necessary drop in reward that comes with that.

Allowing the cloud provider to handle most of the responsibility and hard work of running a mining operation can be a huge pro. They’re maintaining the equipment, keeping it cool, and delivering you a potentially profitable service for your subscription fees. If you’re unable to afford the space and time to manage these things yourself, because you’re still a student or living in a small family home for example, these become massively important pros.

The decision to pursue cloud mining is really just that, a choice. It has lots of pros and cons, and weighing all of them can help you decide if it’s the right choice for you, or your operation.

Bitcoin mining difficulty: How competitive is mining today?

Bitcoin mining has continued to evolve as the cryptocurrency industry has grown from one level to the next. Having begun as a simple task which could be completed by an average computer, mining has now become much more complex, requiring sophisticated equipment and a lot of energy. Companies have sprung up across the world developing Bitcoin mining equipment that gives the miners an edge over their rivals. The change in the mining patterns has been as a result of the constant shifts in the Bitcoin mining difficulty.

Bitcoin mining difficulty is a value that indicates how hard it will be to find a hash that’s lower than the target, which the system defines. It shows how hard it is to compete for the mining rewards on the Bitcoin blockchain with the other miners.

The Bitcoin mining difficulty is automatically adjusted every two weeks to account for any changes in the hash power available from the miners. So, how competitive is Bitcoin mining today?

In the 2018 crypto winter, many miners went out of business. The prices were low and the revenues gained couldn’t account for the heavy energy costs. The number of miners dropped drastically, hitting its lowest in December. The mining difficulty went down in response as well. However, cryptos have bounced back since then, leading many of the miners to resume mining. The mining difficulty has also increased quite significantly to reflect these changes.

This year, Bitcoin mining difficulty has repeatedly smashed previous records to set new all-time high records. This has been as a result of the steady rise in the network’s computing power. In the month of August, the hash rate hit a record-setting 82.5 TH/s (terahashes per second). For reference, in 2018 before the crypto winter took its toll on the miners, the record hash rate recorded had been 56 TH/s. It later dropped to 32 TH/s in December last year before embarking on a consistent rise since then.

With the assumption that most of the mining is being done by some top-of-the-range equipment, it’s estimated that over 100,000 miners have begun operations in the past month. This is an indication that Bitcoin mining is now the most competitive it has ever been.

Mining equipment manufacturers have strived to keep up with the increased demand for the equipment. As these manufacturers develop faster and more efficient mining equipment, the mining hash power is expected to greatly increase, further pushing the Bitcoin mining difficulty upwards.

What is Bitcoin Mining network difficulty?

Years ago when Bitcoin was still a technology that was known to geeks and tech-savvy people, Bitcoin mining was a simple process. All a miner needed was a computer and a connection to the internet. However, as the popularity of Bitcoin has shot up, miners have had to continue investing in more sophisticated and expensive equipment to stay in business. This is because the mining difficulty has continued to rise over the years.

So, what is mining difficulty, you ask? It’s a simply a measure of how hard it is to compete for mining rewards on the Bitcoin blockchain. This value shows how difficult it is to find a hash that will be lower than the target which is defined by the system.

The mining difficulty regulates how long it takes for miners to add new blocks of transactions to the Bitcoin blockchain. This value updates after every 2,016 blocks – or roughly every two weeks – to account for any changes in the number of miners and the hash power.

Bitcoin blocks are mined every 10 minutes on average. After every 2,016 blocks, the blockchain automatically adjusts the difficulty. If the average time used to mine a block was lower, say nine minutes, then it follows that the time taken to mine the 2,016 blocks was shorter than was expected. Therefore, the system recalculates the difficulty upwards.

Conversely, if the average time taken to mine a block was higher than the expected 10 minutes, say 11 minutes, the system automatically recalculates the difficulty downward for the next 2,016 blocks.

The Bitcoin blockchain was designed by Satoshi Nakamoto to accommodate the ever-changing factors and to adopt accordingly. This includes the number of miners. In 2018 during the crypto winter, the number of miners went down drastically, hitting its lowest in December. The mining difficulty went down significantly as well in response.

In December, the mining difficulty stood at 5.1 trillion. It has since then shot up and currently stands just north of 10 trillion.

The mining difficulty doesn’t have a maximum value beyond which it can’t rise. The system assesses the hash power in the ecosystem and recalculates the difficulty accordingly. With every increase, miners find it more difficult to earn block rewards unless they upgrade their hardware accordingly.

Is Bitcoin Mining sustainable?

In almost every other online publication on technology or finance is an article on why Bitcoin mining is unsustainable and could lead to our doom. This industry has been demonized by many and you’d be forgiven for thinking it could lead to humanity’s demise. The Bitcoin mining process is well known to be quite energy intensive, and many have blown it out of proportion with misleading reports and statistics. So, is Bitcoin mining sustainable?

Unsurprisingly, the Bitcoin mining FUD (fear, uncertainty and doubt) has been spread by mainstream media outlets. These outlets were also quick to dismiss Bitcoin a few years ago as a currency for criminals, and later, as a currency for just a few geeks and nerds in online chatrooms. These myths have been debunked over time, with Bitcoin scaling to global levels and being used as a store of value as well as a medium of trade.

The one myth that has stuck is that Bitcoin mining is unsustainable. There have been studies that have supported this myth, but many of them have been debunked by experts in the technology sector as well as the energy sector.

For one, the insinuation that the majority of Bitcoin mining is powered by coal-fired power plants, especially in China has been debunked of late. While China continues to account for a big portion of the Bitcoin miners, they have continued to move away from the use of coal into renewable sources.

Marc Bevand, an independent researcher and angel investor explained, “Because miners are extremely sensitive to electricity prices, they tend to locate in areas where electricity is cheap, which most often is where renewables are used: hydro, solar, wind. This gives electric utilities an incentive to further develop renewables, which reduces their cost, makes them more competitive, and hopefully accelerates the transition away from fossil fuel power plants.”

And indeed, some of the regions that have wooed many Bitcoin miners in recent years are those that produce hydroelectric power. One of these is Canada, whose province of Quebec has become a miner’s haven.

British crypto startup CoinShares supported the switch with a study

Some of the largest Bitcoin mining companies use green energy exclusively including Genesis Mining which is based in Iceland and which enables cloud mining for its clients.

And as with any other emerging industry, the technology is developing and becoming more efficient with each passing day. While initially a normal computer could mine Bitcoin, it’s now a more complicated process marked by advanced ASIC chips. However, ASIC manufacturers have continued to improve on the chips, making them more energy efficient and faster.

Bitcoin mining is sustainable and as the industry continues to move towards green energy and more efficient mining hardware, it will only get better.

How to get started with Bitcoin Mining

As Bitcoin starts to gain more adoption, and with it, publicity, you might be wondering how you can start mining it for yourself. Bitcoin Mining is a great way to support the blockchain while making a bit of profit for yourself. Getting started only takes a few steps, but it’s important to get them right to start your experience right.

Before everything else, if you want to start your own operation, it’s important to educate yourself about how Bitcoin mining works, assess the current market, and figure out if it’s cost effective with your current set-up. Mining operations rely heavily on cheap electricity to turn a profit, so if you calculate that power will cost you less than the profits you’ll make from mining, that’s a great sign for you to begin.

Next, you’ll need to buy your hardware. It’s often best to buy the latest and most advanced mining rigs available, as they’ll keep your energy costs lowest, and provide the most hashrate, meaning you’re more likely to mine the next block in the chain and get the block reward.

Once you have your hardware picked out, you’ll want to decide on your wallet set-up. If you’re planning on mining a bunch of Bitcoin, you’ll want a safe and secure cold storage wallet, as well as a solid everynday wallet to use for transactions. Don’t forget to keep your private key safe, and have your backup plan should anything happen to either of your wallets.

Next, you’ll probably want to consider joining a mining pool. While winning a block reward for yourself will mean a great big return on your investment, going alone could mean waiting a long time before that happens, if ever. By joining your mining operation to that of a pool of others, you’re all more likely to mine blocks much more often, sharing the rewards so you can start profiting sooner.

Assuming you joined a pool, enter your pool and wallet information into your mining software, fire it up, and you’re mining Bitcoin! But that’s not where it ends. You’ll need to keep up to date on the latest developments of the Bitcoin world, including the latest trends, protocol news, and most important for your bottom line, price.

The importance of Bitcoin mining as laid out by Satoshi Nakamoto

By now, you probably know what Bitcoin mining is. The Bitcoin mining industry took off in the past two years, with companies selling crypto mining equipment mining billions. And while you know that Bitcoin mining can make you some money, are you aware of just how important the process is to the Bitcoin ecosystem?

In the physical world, when one party in a transaction pays the other using fiat currency, the second party is certain that the currency received belongs to him/her alone. In the digital world, duplicating a unit of currency is quite easy. Satoshi Nakamoto was well aware that this challenge, known as double spending, would be stumbling block to the use of Bitcoin.

This is why miners are some of the most important stakeholders in the Bitcoin ecosystem. A miner checks for two things when you initiate a transaction. The first is to confirm that you are the recipient of an input by checking the digital signatures. The second is to confirm that you’ve not spent the input elsewhere which would amount to double spending by checking the public Bitcoin SV blockchain.

Miners are therefore integral members of the Bitcoin ecosystem. They keep the network secure, preventing the occurrence of a 51% attack. This is an attack in which a group of miners would control over 50% of the network’s mining hash rate or computing power. In such a scenario, the miners would have the ability to double spend as they could reverse their transactions on the blockchain. With Bitcoin having thousands of miners spread across the world, it’s nearly impossible for it to succumb to such an attack. Smaller cryptos have, however, been the victims of such attacks.

Whenever a block is successfully verified, the miners receive a reward for their mining efforts. The block reward halves every four years. This is the only way in which new Bitcoins are generated. To ensure that the miners are even more incentivized to carry out their tasks, Satoshi designed the ecosystem for them to receive the fees that users in the network pay. This ensures that the transactions are increasingly fast and that the miners continue to secure the network.

Squire agrees to purchase companies with cloud computing assets totaling approx. 2,982 petahash to become one of the world’s largest public blockchain computing companies

Vancouver, British Columbia – August 29, 2019 – Squire Mining Ltd. (CSE:SQR | FWB:9SQ | OTCQB:SQRMF) (“Squire”) is pleased to announce that, further to its press release dated May 30, 2019, on August 29, 2019, Squire entered into a definitive share purchase agreement (the “Agreement“) with Mr. Calvin Ayre, Cunning Hams Limited (“Cunning Hams”), Tansley Equipment Limited (“Tansley”) and Woodland Technology Group Inc. (“Woodland”, and together with Cunning Hams and Tansley, the “Companies”) to purchase all of the issued and outstanding shares of the Companies (the “Transaction”). The Companies own and operate a fleet of cloud computing assets in Canada, the United States and China, representing approximately 2,892 petahash per second of computing power.

As consideration for the Transaction, Squire has agreed to: (i) issue to Mr. Ayre 80,000,000 common shares (the “Common Shares”) in the capital of Squire; (ii) issue to Mr. Ayre 827,000,000 non‐voting participating shares (“NVPS”, and together with the Common Shares, the “Shares”), a new class of shares to be created in the capital of Squire, subject to shareholder approval; and (iii) enter into a profit sharing agreement with respect to the assets of Cunning Hams (the “Cunning Hams Operations Agreement”). The aggregate consideration payable to Mr. Ayre in respect of the Transaction will be subject to adjustment for operational pre‐payments made by the Companies for future use of electricity as at the closing of the Transaction (“Closing”).

The board of directors of Squire has obtained a fairness opinion from Canaccord Genuity Corp., the financial advisor of Squire, that, as of the date of their opinion, and subject to the assumptions, limitations, and qualifications on which such opinion was based, the consideration to be paid by Squire pursuant to the Transaction is fair, from a financial point of view, to Squire.

Closing is subject to customary conditions, including: (i) approval of the Canadian Securities Exchange (the “CSE”) pursuant to CSE Policy 8 – Fundamental Changes & Changes of Business in connection with the transactions contemplated by the Agreement; (ii) CSE acceptance of a revised CSE Form 2A Listing Statement of Squire for the relisting of the Common Shares subsequent to the completion of the Transaction (the “Listing Statement”); and (iii) approval by a simple majority of the votes cast by the shareholders of Squire in respect of (a) an amendment to the articles of Squire to create NVPS; and (b) the Fundamental Change (as defined below) (the “Shareholder Approvals”), in each case at a shareholders’ meeting to be called by Squire (the “Shareholders’ Meeting”). Additional information on the status of filing the Listing Statement and the timing of the Shareholders’ Meeting is set out below.

The Companies and the Assets

The Companies, each of which is incorporated under the laws of Antigua and Barbuda, except for Woodland, which is incorporated under the laws of the Province of British Columbia, own and operate 198,621 ASIC blockchain cloud computers (the “units”), representing approximately 2,892 petahash of computing power, which, upon Closing, would make Squire one of the largest publicly traded blockchain
computing companies globally, as measured by computing power. The units are all operated by leading hosting providers and are allocated across the United States, Canada, and China.

As part of the Transaction, Squire will also be welcoming to its team certain employees and consultants of CoinGeek Mining & Hardware, an affiliate of Mr. Ayre, involved with the management and operation of the assets.

The Consideration
At Closing, Mr. Ayre will receive 80,000,000 Common Shares and 827,000,000 NVPS of Squire, subject to adjustment. The NVPS, the creation of which is subject to the Shareholder Approvals, will be identical in all respects to the Common Shares other than that they will not be entitled to a vote at meetings of the shareholders of Squire unless required by law. Squire and Mr. Ayre will enter into a comprehensive share exchange agreement (the “Exchange Agreement”) and coattail agreement on or prior to Closing to provide for the Common Shares and NVPS to be treated equally in an event of a take‐over bid and other fundamental transaction.

The Transaction would result in Mr. Ayre having approx. 45% of the voting control of Squire. Under the terms of the Exchange Agreement, if at any time the percentage of Common Shares held by Mr. Ayre falls below 40% of the issued and outstanding Common Shares at that time, a number of NVPS shall be exchanged into an equal number of Common Shares until Mr. Ayre’s percentage ownership is 45% or there are no further NVPS outstanding. The parties have further agreed to amend the unsecured convertible debenture note issued in connection with Squire’s acquisition of Freschette Limited on Closing to provide for the shares issuable upon conversion of the debenture to be NVPS.

The Common Shares and NVPS issued to Mr. Ayre pursuant to the Transaction will be subject to the escrow policies of CSE. Additionally, Mr. Ayre has agreed not to dispose through the facilities of the CSE of any Common Shares or NVPS acquired by him pursuant to the Transaction for three (3) months subsequent to the Closing. Upon any sale of the NVPS, such NVPS shall be exchanged into an equal number
of Common Shares of Squire on the closing of such transfer. Following Closing, pursuant to the Cunning Hams Operations Agreement, Mr. Ayre and Taal Technologies SEZC (“Taal Tech”), the wholly owned operating subsidiary of Squire, will split the profits generated
through the use of over 100,000 units owned by Cunning Hams that are located in China on the basis of approximately 65% for Taal Tech and 35% for Mr. Ayre.

Pursuant to the Agreement, Squire will enter into a prepayment agreement note for the repayment of prepaid expenses of the Companies with their hosting providers with respect to future electricity usage (the “Principal Amount”), payable in Bitcoin SV (BSV) to Mr. Ayre. Repayment commences one month after Closing and is recurring monthly for 5 months until paid in full. The Principal Amount outstanding
from time to time will not bear interest.

Additional Details about the Transaction

The parties expect Closing to occur as soon as possible after the Shareholders’ Meeting. Following Closing, Squire expects to change its name to “Taal Distributed Information Technologies Inc.” and its ticker symbol on the CSE to “TAAL”.

Under the terms of the Agreement, either party may terminate the Agreement if (i) Closing does not occur by October 31, 2019, other than by reason of a material breach by the party terminating the agreement of his/its obligations under the Agreement; (ii) the Shareholder Approvals have not been obtained or if the Meeting in respect of the Shareholder Approvals has not been held by October 31, 2019 or it becomes reasonably apparent that the Shareholder Approval will not be obtained by October 31, 2019; or (iii) if approval of CSE in respect of the Transaction has not been obtained by October 31, 2019 or it becomes reasonably apparent that such approval will not be obtained by October 31, 2019. In such circumstances, Squire would be obligated to pay to Mr. Ayre liquidated damages equal to USD$1,000,000 and shall have no obligation thereafter.

Prior to Closing, at Squire’s request and subject to certain expense sharing between the parties and indemnification from Squire in respect of any extended period of non‐operation of such units, the Companies will cause certain of the units to be relocated from their current location for strategic reasons. Further information regarding the Transaction will be included in the information circular that Squire will mail in due course to its shareholders in connection with the Shareholders’ Meeting. The Agreement will be filed on the SEDAR profile of Squire on the SEDAR website at www.sedar.com.

CSE Stock Halt

As the Transaction would constitute a “fundamental change” (“Fundamental Change”) of Squire, as defined in CSE Policies, and, pursuant to CSE Policies, Squire’s stock has been halted and will remain halted at least until the meeting materials have been accepted by CSE, sent to shareholders of Squire for approval of the Fundamental Change and posted to CSE website. The halt is considered a Regulatory Halt as defined in National Instrument 23‐101‐Trading Rules.

Update regarding Shareholders’ Meeting

Further to the press release of Squire dated June 30, 2019, since the announcement of the Transaction, Squire has been working towards the completion of the Listing Statement as required pursuant to CSE Policies, a revised draft of which has been re‐submitted by Squire to CSE for further review and approval. Squire will announce the new date for the Shareholders’ Meeting in due course.

“We are in the final stages of this long, anticipated transaction and the entire team is solely focused on closing this Transaction. We are working intensely with the regulator and third‐party professional services to respond immediately requested revisions to continue to progress towards the finish line. We want to move past this, for us and our shareholders, as we are eager to operate at scale and take on new and exciting challenges that await us,” Angela Holowaychuk, Chief Executive Officer.

Advisors to the Parties

Canaccord Genuity Corp. is acting as exclusive financial advisor to Squire in respect of the Transaction.

Norton Rose Fulbright Canada LLP is acting as legal counsel to Squire. Fasken Martineau DuMoulin LLP is acting as legal counsel to Mr.Ayre, Cunning Hams, Tansley and Woodland.

Canaccord Genuity Corp. will be paid a success fee in connection with the Transaction, further details of which will be disclosed in the information circular in respect of the Shareholder Meeting.

Corporate Update

New Director Appointment

Squire is pleased to announce Michael Cella has joined the board of directors of Squire (the “Board”) as an independent director as of August 23, 2019. Mr. Cella has been appointed to the Board of Squire. Mr. Cella has over 30 years of corporate executive experience and has raised over $4 billion through private and public offerings for progressively larger and more complex companies. Currently Mr. Cella acts as President WCF Holding, LLC a business, financial and project development advisory services firm. Prior to this he was a director, Chief Financial Officer and Secretary of Global Alumina Corporation, a TSX listed company formed to pursue a $5 billion dollar integrated bauxite mine and alumina refinery in the Republic of Guinea. Mr. Cella received his Master of Management degree in Finance and Management Policy, 1980 from J. L. Kellogg Graduate School, Northwestern University. Mr. Cella has been named to the audit committee of the Board, effective immediately.

“I am delighted to join Stefan, Angela and the other members of Squire Mining’s board of directors, and look forward to serving Squire’s shareholders as an independent member of the board as we position Squire to take full advantage of the growing opportunities in blockchain computing.”

Appointment of CEO and President and Corporate Secretary

The Board has resolved on August 13, 2019, that Angela Holowaychuk has been appointed President and Chief Executive Officer, in a permanent capacity, effective immediately. The Board has also resolved, effective August 23, 2019, to appoint Joseph Chin, the Chief Operating Officer of Squire, to the additional position of Corporate Secretary.

About Squire Mining Ltd.

Squire is a Canadian based technology company engaged, through its subsidiaries, in the business of developing and operating cloud computing data infrastructure and system technology to support global blockchain applications related to Bitcoin SV, Bitcoin Core and other associated SHA‐256 derived digital assets.

About CoinGeek Mining & Hardware

CoinGeek Mining & Hardware operates a global fleet of ASIC cloud computers that provide their hash power to secure and scale the Bitcoin SV enterprise‐grade blockchain. CoinGeek’s professional team has developed industry leading practices to ensure its mining fleet operates at peak performance whilst optimizing its cost profile to maximize profitability.

For further information contact:
Angela Holowaychuk
Chief Executive Officer
(Office Telephone: +1 800‐371‐2809)
CSE accepts no responsibility for the adequacy or accuracy of this release.

CAUTIONARY STATEMENT REGARDING FORWARD‐LOOKING INFORMATION:

This news release includes “forward‐looking information” as defined under applicable Canadian securities legislation. Forward‐looking information and statements include, but are not limited to, disclosure regarding possible events, that are based on assumptions about future economic conditions and courses of action. Forward‐looking information is necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward‐looking information. Such factors include, but are not limited to: general business, economic, competitive, political and social uncertainties, uncertain and volatile equity and capital markets, lack of available capital, future demand for Bitcoin SV, Bitcoin Core and other cryptocurrencies and risks related to the mining thereof, integration issues, personnel and staffing requirements and technological change and obsolescence and risks that the conditions to closing in respect of the Transaction will not be satisfied. There are no assurances with respect to: whether the Transaction will be completed or completed on the same terms or in the anticipated time provided or that conditions to closing in respect of the Transaction will be satisfied including without limitation: obtaining approval and acceptance by the CSE of the revised Listing Statement; the timing for release of the halt of trading of the common shares on the CSE; the timing of the Shareholders’ Meeting; obtaining the required shareholder approval at the Shareholders’ Meeting; and the timing and completion of the Transaction (on the terms presently contemplated or otherwise). Actual results and future events could differ materially from those anticipated in such forward looking information. Accordingly, readers should not place undue reliance on forward‐looking information. All forward looking information in this news release is made as of the date hereof and qualified by these cautionary statements and those in our continuous disclosure filings available on SEDAR at www.sedar.com. Squire disclaims any intention or obligation to update or revise such forward‐looking information, whether as a result of new information, future events or otherwise, except as required by law.

Importance of Bitcoin Miners to the security of blockchain

As you already know by now, Bitcoin miners are the lifeblood of the Bitcoin ecosystem. They validate the transactions on the Bitcoin network, ensuring that double spending doesn’t take place. However, they do more than that, ensuring the security of the Bitcoin blockchain.

Blockchain networks are highly secure, but not all blockchains are as secure as the Bitcoin blockchain. Some blockchains are susceptible to 51% attacks, a type of attack in which a single entity controls the majority of the hash rate, causing a network disruption. The entity could modify the ordering of transactions and also possibly reverse transactions they’ve made preciously, leading to a double-spending problem. In 2018, over $20 million was lost in nine 51% attacks.

Bitcoin miners are the gatekeepers who keep this from happening in the Bitcoin blockchain.

Bitcoin miners are spread across the world. Unlike with smaller cryptocurrencies which can sometimes have the network hash rate concentrated within a few miners, Bitcoin’s universal appeal makes this close to impossible.

When Bitcoin was launched, it was made to be democratic in that the longest chain is perceived to be the legitimate one. Thus, if a malicious party got hold of enough computing power, he could secretly mine blocks on an alternate blockchain, running parallel to the legitimate one that the other nodes are mining. Once the chain belonging to the malicious party becomes longer than the legitimate chain the other nodes are mining, the other nodes are forced to accept the new chain as the legitimate one.

The only defense the Bitcoin blockchain has against such an attack are the miners. These miners ensure that in the spirit of self-interest, they verify transactions as fast as they can so that they can a bigger share of the block reward. In this competitive spirit, these miners ensure that no single malicious party has a stranglehold on the Bitcoin network.

Why people mine Bitcoin: Profit and potential

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.

why-people-mine-bitcoin-profit-and-potential

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.

Know your Bitcoin Mining lingo

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.

Bitcoin Mining traps: What not to do

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.

Breaking down the fallacies of Bitcoin Mining

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.