What’s Bitcoin Mining?

People who are new to Cryptocurrency world and just starting to learn the principles, terminologies, and technology might be asking “So, where do these cryptocurrencies come from, particularly, Bitcoins? or How can one earn Bitcoins without buying?”

There are a lot of ways that you can start earning Bitcoins, some more controversial than others. But today, we’ll be talking about the more traditional way, and that is through mining.

 

WHAT IS BITCOIN MINING?

The term Bitcoin mining is slightly misleading. You won’t need a pickaxe to swing at stones to find additional Bitcoins. Bitcoin mining is the process of adding new and more Bitcoins coins to the digital currency system. So how do new Bitcoins come into existence through this mining process? By letting your computer solve complex mathematical equations, new Bitcoins are generated.

As the time progress, the difficulty level of these mathematical equations increases. That’s very important because controls the number of Bitcoins that is put out in the circulation. Meaning, if the supply of the item is not that high, the demand for it increases making the price of Bitcoins very volatile.

Now you may be wondering, is mining Bitcoins legal? And the straightforward answer to that is, Yes. In many cases, Bitcoin is not treated as a currency but rather a personal property. As such Bitcoin is afforded some legal protection, just like any other property. Will it ever be considered as illegal? It’s a little complicated. Some people falsely believe that Bitcoin mining is like counterfeiting money, but that’s not true. Also, some government views Bitcoins as a threat because it competes with their national currency while some believe that it undermines the government entirely. For example, in Russia where Bitcoin is banned. Some Russian authorities want people who use Bitcoin to face multi-year sentences in jail. Others are advocating for a softer touch.

 

BITCOIN MINERS

So, who’s in charge of mining the Bitcoins? The ones responsible for mining Bitcoins are called Bitcoin miners. They are the ones who add the public transactions made by the people who use Bitcoin into the blockchain.

Miners use a mining rig, which is a metaphor for a single computer system that performs the necessary computations to mine Bitcoins. This provides a smart way to issue the currency. And, also creates an incentive for more people to mine. Since miners are required to approve Bitcoins transactions, more miners mean more secured network.

 

MINING SOFTWARE

While the Bitcoin mining hardware itself handles the actual process of Bitcoin mining, special Bitcoin mining software is needed to connect Bitcoin miners to the blockchain and your Bitcoin mining pool as well, if you are part of a Bitcoin mining pool, which will be discussed later on this tutorial.

The software delivers the work to the miners and receives the completed work from the miners and relays that information back to the blockchain and your mining pool. The best Bitcoin mining software can run on almost any operating system, such as OSX, Windows, Linux, and has even been ported to work on a Raspberry Pi with some modifications for drivers depending on your mining setup. And some of this software include MinePeon, EasyMiner, BFG Miner, and CGMiner.

Not only does the Bitcoin mining software relay the input and output of your Bitcoin miners to the blockchain, but it also monitors them and displays general statistics such as the temperature, hash rate, fan speed, and average speed of the Bitcoin miner.

There are many other different types of Bitcoin mining software out there, and each has their own advantages and disadvantages, so be sure to read up on the various mining software out there.

 

GRAPHIC CARDS

The Bitcoin network automatically changes the difficulty of the math problems, depending on how fast they are being solved. Now you might be wondering how does a graphics card help in mining?

In the early days, Bitcoin miners solved these math problems with the processors in their computers or their CPU but soon discovered that graphics cards used for gaming were much better suited to this kind of work. Why? GPUs are laborers. They do a lot of repetitive work which is what is required in rendering a video game. And that’s what’s involved in mining. GPUs also have a lot more ALU or arithmetic logic unit than CPUs and as a result, they can do massive amounts of heavy mathematical labor.

 

ASIC (Application-Specific Integrated Circuit)

Are chips designed and manufactured for a specific purpose. ASIC chips have been made specifically for Bitcoin mining. It allows miners to use hardware explicitly made for Bitcoin Core or other SHA-256 algo coins. An ASIC has benefits over CPU, GPU, and FPGAs due to being designed for one specific task only. They can mine Bitcoins at a higher hash rate (speed of processing transactions) than CPUs, GPUs, and FPGAs.

Though some controversies are surrounding the existence of ASICs in the cryptocurrency world as some fear that ASICs may lead to centralization of cryptocurrencies, it hasn’t necessarily played out in practice.

ASIC technology now has made Bitcoin mining even faster while using less power.

 

POOL MINING

Bitcoin core mining has gotten so high powered with the race to be the winner to solve a block, that it has evolved into pool mining where a group of miners wants to have as much hash power as possible to get a share of the Bitcoin Core block reward. By combining your hash rate with that of many others, you have a better chance of solving blocks (creating a block) and getting the block reward.

 

So, going through this specific way of getting Bitcoin has probably made you want to be a miner. But before you can do that, there are plenty of things to consider before you start generating some digital cash through mining. You would need to consider the hardware you would need to mine, and that alone may take a while as there is already some software dedicated to mining. Not to mention the amount of power that a mining rig will eat up. And there’s also the question of whether or not your country or government allows Bitcoins or cryptocurrencies let alone mining them.

Tiz Gambacorta
 

Tiz managed a $750m derivatives portfolio by age 22 as an FCA-regulated trader. After being promoted the youngest Vice President in the trading division of Barclays Bank headquarters in London UK, he realized there was more to life than working for "the man". He went on to build, scale and sell five separate, six-figure a year digital publishing and education businesses. He then merged his passion for finance and for the internet by co-founding 8020Research.com - the No 1 education organization dedicated to helping people live the life they dream, desire and deserve by leveraging the Internet. After investing $150,000 into his own trading education, he became financially free by the age of 36 and is now on a mission to help 100,000 average people take back control of growing and protecting their wealth by December 31st, 2020. Having traded and served clients at the highest level on Wall Street and in the City of London during some of the worst terrorist attacks that shook the markets gives him a first-hand understanding on how to profit from rising and falling markets. His high net worth private clients regularly pay him in excess of $50,000/year for his insights.

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