The main goal of the mining process is to maintain security, confirm the transactions between wallets and at the same time, maintain the integrity of the blockchain. While also rewarding miners who take part in helping to maintain the network.
Bitcoin shares its properties with that of gold, as it is also known as the gold of the internet. Like gold, mining Bitcoins are also available to be mined by anyone that would like to take part in the overall mining process.
So why do we mine Bitcoin?
Satoshi created a uniform system that created opportunities for miners to be able to participate in maintaining the network and be rewarded for their part in the mining process.
The primary purpose of Bitcoin Mining is as follows:
One of the very first questions asked related to Bitcoin is, ‘What Is Bitcoin Mining?’
Since the system is decentralized, we cannot hand it over to a central authority. The system uses computational problems that are solved by the systems participating in the network, on a distributed ledger, known as the blockchain.
In the mining process, the users participating in the network are known as miners. When a transaction is made in the system, all the miners need to update their copy of transaction details, i.e., deduction of value from one account and addition in the other.
The ledger is updated based on the system that correctly solves the mathematical problem first. Then the people participating in the system are needed to maintain the ledger according to the updated details.
Like traditional currencies are issued by central banks, the system issues bitcoins in the mining process with one huge difference.
The government generates traditional fiat as they deem necessary regardless of short term or long term effects it may have on the economy.
Bitcoin doesn’t work like this.
Bitcoin is a smartly coded system that is not possible to change or cheat. Bitcoins are awarded on 10 minutes intervals. This is the reward earned for the computational power provided by the miners to keep the system functioning properly.
The higher the number of miners, the more computational power is required which increases the difficulty required to solve the computational problems. This is automatically done based on the number of miners to be sure that a new block is mined only every 10 minutes.
Although it might seem like a simple and straightforward way to make big bucks, in reality, it is not. The amount of computational power needed to take part in the mining process is not easy to get.
Seeing the increasing value of bitcoin, some brands and group of people established massive warehouses having specialized hardware to mine bitcoins and to increase their chances of getting rewards by solving the computational problems.
As the number of people participating in the mining process increases, it becomes challenging to mine the bitcoins for massive profits.
So if you are a single person who wants to invest in bitcoin mining, it might not be profitable seeing the cost of mining hardware and electricity used.
The outcome might never be more than the investment made by you. Cheap electricity and using low-cost equipment might be one of the affordable but no so efficient solutions in this regard.
If you believe the value of Bitcoin will significantly increase over the years and you want to mine to store your Bitcoin for the long term, then mining may be something to consider.
If you want to take part in the mining process, here is what you need:
First of all, you need the right mining hardware that could perform computations that are required in less time. If you are planning to start this on your personal computer, you might make pennies, and your resources like electricity will be wasted in the end.
After getting your hands on the hardware, you will need to select a mining pool.
Bitcoin Mining Software is used to attach your hardware to the mining pool. For payments and transactions, you will need a bitcoin wallet.
Don’t go through the trouble of mining bitcoin to end up losing what you have earned. Our battle tested solution for your hardware wallet is the Trezor as the safest and secure way to store your Bitcoin.
When bitcoin launched, it was not adapted so early other than by a small select community, but now over time, Bitcoin is beginning to be more accepted as an online payment method.
In most countries and the US, it is legal to use and trade bitcoins.
In some countries where the acceptance and regulation are still unclear on the adoption of cryptocurrencies, it is not legal yet.
There is still an uphill battle on how cryptos will be regulated and accepted across the globe. With this uncertainty, it is best to contact your local government if you are unclear of where cryptos currently stand in your Jurisdiction.
As of writing this content, there are 17,886,800 bitcoins in existence. Bitcoin mining process operates on 10 minutes interval, i.e., every 10 minutes a new block is mined. Each new block adds 12.5 bitcoins in overall circulation of bitcoins.
There are on average144 blocks that are mined daily. There are 12.5 bitcoins per block. Multiplying both numbers, we get 1,800, the average amount of bitcoins that are available to mine per day.
The main idea with which the value is determined is the simple concept of supply and demand. When demand increased the value increase, and with a fall in demand, the value decreases. Satoshi created the system in such a way that events like bitcoin halving, where the value of Bitcoin is halved after a fixed period will eventually result in the ending of bitcoin production one day. There will be no new bitcoins will be available to be mined by the users. These kinds of factors are essential for the value of Bitcoin.
Bitcoin is volatile. One day it might go up by 8%, and the next day it could drop 12%. This unpredictable nature deters a lot of people, but the potential profits that could be earned are the reason why people continue to invest in it.
By default, bitcoin does not exist in physical form like traditional currencies. The value or worth of bitcoin is determined by the people buying, selling, and holding Bitcoin in the overall system.
One significant factor that affects the price is the fact that the market is so young that some individuals own a considerable amount of Bitcoin and what they decide to do with that Bitcoin can make for substantial fluctuations in Bitcoins value.
Crypto Industry believes that the bitcoin halving process is the primary catalyst that kicks bitcoin off in every new cycle.
The wallet growth of bitcoin depicts that the combination of limited supply and higher value rewards, only things that make sense are that the price will eventually go high up; the simple yet effective concept of supply and demand being used here.
This halving is a big topic in the crypto space and we created a dedicated article explaining what it is, potential price movement and much more. For more details see our article, ‘What Does Bitcoin Halving Mean?‘
When bitcoin was launched in the start, it was called a bubble that will lose its value rapidly one day and become worthless. But it never really happened, the value of Bitcoin reached its lowest for a few days, but it never crashed or reached zero.
Even if you have been in crypto a short period of time, it’s likely that you have heard the statement that Bitcoin is a Bubble. It’s much to important of a topic which is why we created a detailed article on the topic called, ‘Is Bitcoin A Bubble | Both Points of View‘ in case you are interested in learning more about this on going debate.
Events like bitcoin halving may be a significant factor in determining the future value of bitcoins. No currency is safe from external changes; one considerable change might affect its overall value, and there is always a chance it might fail one day.
However, no one is in a position to completely predict the future of how things will turn out.
When transactions are made, all the nodes or networks participating in the blockchain need to be informed and updated about the transaction.
This transaction is then recorded on the blockchain. A transaction is only secure once it is added into the block.
The number of confirmations ranges from zero to six, depending on the value of transactions. A payment with zero proofs is not added into the block. For small transactions like $1,000, only one transaction is needed. Transactions more than $1,000 and less than $10,000 require around three confirmations and so on.
Miners are responsible for safe and secure transactions on the blockchain. They make it challenging to attack and manipulate transactions.
This is why the reward is so valuable because the higher the number of miners, chances are that the system will remain safe and secure.
It takes multiple miners from a wide variety of locations to confirm a transaction. So, if one is compromised, it doesn’t affect the transaction or accuracy of that block in the chain.
The main goal of Satoshi Nakamoto behind the invention of Bitcoin was to create a decentralized system. A system that is not controlled by some central entity but controlled by the very people participating in it.
In this way, without the involvement of central authorities or a third party, Bitcoin would not be valued by the governments.
Governments or central banks influence fiat currencies like dollars, and they can decide or alter the value of it, unlike Bitcoin due to the mining process.
This idea behind the creation of bitcoin as a cryptocurrency laid a solid foundation to the market we know today. Bitcoin miners help create this new, digital asset known as Bitcoin that is on it’s way to mass adoption and the new digital way we exchange value to one another.