While you can't mine Bitcoin at home anymore, there are still ways that you can get involved in cryptocurrency mining without breaking the bank.
These days, life isn't as easy for those mining Bitcoins. Block rewards have been halved every few years — the number of Bitcoins entering circulation has dwindled to just 6.25 BTC a block. Nonetheless, Bitcoin transactions still need to be validated, meaning transaction fees have become a vital source of their income.
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How Transactions Work on the Bitcoin Network
Before we get bogged down in the technology associated with producing new Bitcoins, let's find out how a Bitcoin block is mined in a really simple way.
As you'll (hopefully) know, the blockchain is home to the full transaction records of Bitcoin, all the way back to when the first block was mined in 2009. Over the years, a chain of blocks has been created, meaning past transactions are prohibitively difficult to edit. In order to amend transaction data, every single block that came afterwards would need to be recalculated — and that would take an insane amount of computing data.
The Process of Mining Bitcoins
A new block is created every 10 minutes. This means that, about six times an hour, Bitcoin miners are involved in a massive competition to receive a block reward. Mining Bitcoins takes a lot of computing power, and the lucky person who gets to validate a block will have solved a mathematical problem before the rest of the network. (This is the whole rationale of proof-of-work, as the high amount of processing power involved helps prevent denial-of-service attacks.)
What Is a Hash Rate?
In order to ensure that cryptocurrency mining is happening consistently, with a new block emerging every 10 minutes or so, mining difficulty on the blockchain is regularly adjusted — approximately every two weeks. If the hash rate was at a high level, but the mathematical problems required to get block rewards were too easy, new Bitcoin would be entering into circulation too quickly. (Calculations that are too high would create similar issues.) The next section in our dazzling guide looks at the kit that's required to mine Bitcoin successfully.
State-of-the-art processing units aim to offer the highest hash rates possible, as this gives miners a greater chance of being the first to solve mathematical problems. Several companies produce Bitcoin mining hardware, and as an alternative it's also possible to build your own.
Electricity costs are a massive consideration, as otherwise the expense of your energy consumption could outweigh any block rewards you receive.
The Main Types of Mining Rigs
Let's go through some of the most common mining rigs out there. Each type of Bitcoin mining hardware comes with pros and cons.
There are alternatives to splashing cash on all this hi-tech equipment that know how to mine Bitcoin. As the name suggests, mining pools involve combining your computing power with others — all in the hope of boosting the chances that you'll verify a new block. If successful, the block reward is then split between everyone in the group.
Another is cloud mining. Instead of getting all the Bitcoin mining hardware yourself, this is where you effectively buy processing power from remote mining farms. This is comparable to being an investor in a sophisticated operation, where you receive a cut of any proceeds that are made. Although there are legitimate ventures that sell mining power this way, you need to be on the lookout for scams. And even though it's low maintenance on your part, do remember that you may need to enter into a lengthy contract with high monthly fees. This can end up eating into your profits — and it is possible you'll make a loss.
Should You Start Bitcoin Mining?
Bitcoin mining can be profitable — especially in areas where electricity is fairly inexpensive. Levels of profitability are also dictated by the current price of Bitcoin. Getting involved when mining difficulty is low also delivers a greater chance of landing yourself some sweet, sweet crypto.
What Altcoin Mining Opportunities Are There?
Of course, you can put your mining hardware to good use on smaller blockchains.