How Does Bitcoin Mining Work
Bitcoin is still an undisputed king of cryptocurrencies, and there are no prospects of this changing in the foreseeable future. So it is only natural that lot of people wonder how to mine Bitcoin, what is needed for it, and what is mining Bitcoin able to bring you money-wise.
Therefore, we decided to present you the entire process of mining Bitcoins explained in layman’s terms. There are a lot of nuances that we had to omit, but you’ll get the general idea.
How does Bitcoin mining work?
- Miners (blockchain nodes) independently validate transactions (mainly check, whether the sender actually has the coins they send) and bunch them together.
- According to the Proof-of-Work consensus algorithm, in order to gain the right to add a new block, the miner has to be the first to find a hash sum of the entire block (including all transactions and the header) that is under a certain value. This value is random, but within a certain range determined in accordance with the total computing power available to the chain.
- The very first to find a solution adds the block to the chain. Other nodes check whether the hash is correct.
- The node receives the reward. It consists of - 6.25 new BTC released in circulation - and fees from all the transactions included in the block.
The “fixed” reward is cut in half every few years, since the total supply of BTC is fixed at 21 millions. In 2024 it will be cut to 3,125. Eventually, it will diminish to zero and miners will only get transaction fees.
What do you need?
BTC extraction requires huge amounts of computing power and since the number of miners is constantly growing, it becomes more complicated and requires and more computing resources.
Since the first blockchain launch, BTC extraction hardware evolved from home PCs to crypto mining rigs of multiple graphics cards working together to ASICs - highly specialized machines tailor-made for producing coins and unable to do anything else - combined in a huge pool of dozens upon dozens of such devices.
Essentially, a relatively new ASIC (no more than a couple of years old) is necessary for effective coins production. Like a drill with proper mining bit is necessary for extracting coal or ore.
But it is not enough to simply purchase an ASIC - it must be properly set up, configured, and provided with a perfectly stable Internet connection and power supply. If your uptime is less than 99% - you can’t be competitive. In addition, the hardware required for crypto extraction is extremely power-hungry, which leads to huge expenses. And after that, it is necessary to join one of the big pools - it is virtually impossible to make BTC extraction profitable solo.
Given the hassle, it is not surprising that people turn to services like cloud mining and hosting. It is much easier to just rent some equipment from professionals and earn without thinking too much.
How to make money mining Bitcoins
To be fair, once you’ve received your hard-earned cryptocurrency, it is very easy to make a hefty profit out of it. Naturally, you can just sell your crypto on any exchange platform you like. But you can also use these coins to multiply your capital. Here are just the most obvious examples:
- Use mined BTC for trading
- Invest in one of the multiple DeFi-projects
- Purchase tokens of a promising project
- If you rely on cloud services, you can re-invest in new contracts
In other words, whether you decided to set up a rig at home or use the services of a competent platform like Ultramining, there always be plenty of ways to maximize your profits available to you.