How to Mine Bitcoin and Why You Shouldn't
I get a lot of questions asking about mining Bitcoin. Everyone’s heard the story of some young kids who mined a huge amount of Bitcoins at its starting days and then were made millionaires overnight when the price hit the roof. Can you still profit like that from mining Bitcoin ? Let’s have a look.
The Basics of Mining Bitcoin
Firstly let’s explain what mining Bitcoin is exactly and how it works. Let me introduce you to the basics of the technology behind mining Bitcoin.
Mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions. This ledger of past transactions is called the blockchain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the blockchain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.
The point of mining is to let the nodes create a secure consensus. Mining confirms and secures each transaction. This process also creates more Bitcoins as a reward to the miners, this is to encourage them to keep mining to keep the system secure. It is not mining in the traditional sense, how it works is to be able to get Bitcoins as a reward the computer or node needs to solve a mathematical problem. The difficulty of mining will grow over time and the reward will go down. Currently the reward for every block discovered is 25 Bitcoins. This is going to be cut in half every 210 000 blocks. On top of this the miner will also get a reward from the transaction fees, this is to incentivise the miner to include the transaction in their block.
Different Ways of Mining and Profitability
- Individual Mining
This is mining with your own hardware and software on a small scale. Let’s say you get some software installed on your computer or specifically build a mining machine in your home then this is what you’d be doing.
Is it profitable ? It was if we go back about 5 years ago when the reward was higher and the complexity significantly lower. Right now the rewards of mining at a small scale just don’t pay off because:
- The software and hardware you need for mining is quite expensive.
- It uses a huge amount of electricity and generates a lot of heat.
So after you’ve purchased all the stuff for mining as efficiently as possible and paid your electricity bill the reward left over from the Bitcoins received doesn’t make much sense.
- Cloud mining
Cloud mining and mining pools are essentially teaming up and using the computational power and then sharing the reward. The profitability of this is also diminishing greatly and there’s also normally a small fee for entry – that is significantly smaller than if you were to purchase your own hardware and software however as the rewards diminish and complexity of mining Bitcoin goes up this too isn’t very profitable. There are huge mining farms in countries with a very low electricity cost. Huge ventilated warehouses – now as this might make more sense due to the computational power, this is not very eco friendly.
To Mine or Not to Mine?
If it was 2010, then I would say, yes! Mine the hell out of it, there’s a huge reward waiting for you. Nowadays not so much. So, what can you do instead to get Bitcoin ?
- Mine new altcoins that are less difficult to receive and then exchange them for Bitcoin
- Accept them as a payment for your goods and services
- Buy Bitcoin on exchanges.
Hope this clears things up a bit on the mining bit. In my opinion right now there’s not a lot of point in mining Bitcoin for profit. And that is only gonna go down. I prefer trading it as the price is still volatile and there are great profits to be made. You can get into the trading game with us, we’ve got all the tools you need. Have a look!