With a market dominance of 58%, Bitcoin is by far the most in-demand cryptocurrency out there. After increasing in value from $900 to over $20,000, interest in Bitcoin went mainstream in 2017 and now you’re probably looking to get some more information. Bitcoin mining is a way of verifying transactions and creating new bitcoin, which allows anyone with a computer and the right know how to make money using cryptocurrency. Here is a step by step guide to the process.
Proof of Work
While paper currency is printed by a centralized system or government, Bitcoin is open source and more can be created by anyone. They are created and released in return for solving math problems. One of the most important roles of Bitcoin miners is to verify transactions and keep the system secure.
Proof of work looks at new Bitcoin and determines how much energy was used to create it. A Bitcoin can only be rewarded if it was both costly and time-consuming to be made. While you work hard to solve the math problems, it is easy for others to check that you have met the requirements and release Bitcoin as a reward.
Mining Difficulty
The difficulty level of mining varies depending on the number of miners. If new miners join to create Bitcoin, then the average mining time will decrease. In response, the difficulty level will go up, so that the block creation rate goes down. This keeps the average mining time stable at around 10 minutes per block.
This automatic adjustment occurs every 2016 blocks, which is roughly every two weeks. With constant computational power increases, the difficulty level of mining must also increase to keep the mining difficulty constant. If you want to keep up with a competitive market, you will need ASIC software, which was created for mining Bitcoin. While a normal desktop was able to mine Bitcoin in the past, this is sadly no longer the case.
Cloud Mining
If you want to get into Bitcoin mining, but you don’t have the money to invest in the hardware, then there is an alternative. Cloud mining allows you to take advantage of other people’s tech to remotely create new blocks. When it comes to the latest mining hardware, cost is just one issue of many. You have to worry about creating enough electricity and bandwidth to run the device, as well as sorting out overheating problems, hosting, upkeep and installation.
There are, however, some downsides to cloud mining. Firstly, you could encounter a fraudulent Bitcoin miner, who scams you out of your money for hardware that they do not possess. If you do find a legitimate host, then you have to deal with the overhead costs and therefore lower profits. By owning your own hardware, you have complete control over the Bitcoin you mine and you have the ability to edit software. This is also a more enjoyable option for technophiles.
The Blockchain
The blockchain is a decentralized, public ledger, which keeps a record of all digital transactions. Recent transactions (blocks) are verified and added onto the blockchain in chronological order. This can then be accessed by anyone who wishes to enter the market. This shows which transactions are verified and release Bitcoin into the market. Once you have gone through the above steps, this is the final stage where you will see the fruits of your labor go live.
Getting your head around cryptocurrency is difficult for even the smartest mathematicians. However, hopefully, this guide sheds some light on the process and clears up some of the key definitions. Once you have decided whether to mine via the cloud or invest in your own software, all you can do is get started and see what happens. Bitcoin has made a lot of people very rich and could soon become preferred over traditional paper currency.
