Bitcoin Mining Explained

If you’ve recently delved into the world of bitcoin and cryptocurrencies, then you’ll have come across a term known as “mining.” Many people get confused with the technology behind bitcoin and are naturally put off from getting involved or buying bitcoin for themselves. We aim to break down bitcoin mining into simple terms for people to understand and familiarize themselves with blockchain digital assets like bitcoin.

Bitcoin mining can be likened to mining for gold in some ways as far as the process itself. With physical gold mining, you would use a running water sluice to wash yards and yards of dirt that you’ve collected in the hope it contains gold which settles on the bottom of miners mats. These sluices, or goldmines, run 24/7 continuously for months on end washing mud and hopefully collecting large amounts of gold.

Bitcoin mining is a similar process, but only in the sense that your computer is the sluice, and instead of washing mud, your computer is processing and solving mathematical problems on the bitcoin blockchain network known as a “hash”. As a reward for solving the “hash”, a bitcoin miner will recieve some bitcoins. Without bitcoin miners, there would be no blockchain network to run bitcoin and process tranactions.

Bitcoin Miner Hardware

Anyone can download the bitcoin software and turn their computer into a bitcoin mining machine, however, bitcoin mining has become very competitive since the early days. Today, bitcoin miners use fast computer gpu’s and cpu’s to process and solve the blockchains hashes. If you were to use a basic laptop and mine for bitcoin, then the chances of you earning a profit are almost zero due to the kind of power you’d need and electricity costs involved to be successful. For this reason alone, many bitcoin mining operations use multiple high powered computer gaming graphic cards than run constantly on the network mining for coins.

Nvidia, one of the worlds largest and most popular manufacturers of computer graphics cards, have already stated that a major part of their recent profits over the past few years is the higher demand for their gpu’s and rise in bitcoin mining operations. You may come across the term “bitcoin mining rig” which is the name given to custom built units using multiple graphics cards together to mine for bitcoins and other cryptocurrencies. Here are some useful terms to familiarise yourself with when it comes to bitcoin mining rigs.

  • Hash Rate - A Hash is a mathematical problem the miner’s computer needs to solve. Therefore the Hash Rate is the rate at which these problems are solved. Naturally the more miners that join the Bitcoin blockchain network, the faster and higher the overall network Hash Rate will be. Your standard home laptop of computer will have a low mining hashrate unless you purchase some expensive hardware to increase its hashing power. Hash rate performance is measured in MH/s (Mega hash per second), GH/s (Giga hash per second) and TH/s (Terra hash per second).
  • Power consumption – Each mining computer or rig will consume a different amount of energy depending on your country and hardware. It’s important to check the exact power consumption of your miner so you can calculate the profitability of your operation. Bitcoin mining is big business in China and understandably so as their energy costs are extremely low compared to other countries like the UK, US and parts of Europe.
  • Bitcoins per Block – Each time a hash (mathematical problem) is solved, a constant amount of bitcoins are generated.The current number of bitcoins awarded per block is 12.5.

Is Bitcoin Mining Profitable In 2017

The short answer is “no not really” unless you spend a lot of money on hardware and your energy costs are very low. These days you would need to join a “mining pool” which is the term given to groups of miners linking together with their mining rigs and computers to increase overall hashing power and earn some bitcoin collectively. There are many online companies offering “pool mining services” that will charge you “pool fees” if you wish to join and mine for bitcoin. Of course bitcoin is very lucrative for those with powerful mining operations, but as times goes and more people and companies invest big money into mining it becomes less and less profitable.

Is Bitcoin Mining Legal

Depending on your country and its stance on bitcoin and other decentralized digital currencies, mining is totally legal. There was an incident in Ukraine where a mining operation and hardware were seized by authorities which caused a bit of a backlash. Since the incident, authorities are now looking to quickly bring in some regulation that would see bitcoin and bitcoin mining largely become accepted in the country.

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