Bitcoin Doesn’t Grow on Trees
Bitcoin Explained (Part 3)
It’s a great pleasure to introduce Biditex readers our new guide for Bitcoin beginners. It consists of 5 articles that will explain what is Bitcoin (BTC), how it works and how you can use cryptocurrency in everyday life.
Just like money, bitcoins also don’t grow on trees. But unlike traditional paper money, you can’t touch, feel, or print bitcoin. Bitcoins are mined on the blockchain network, and they come into existence when miners successfully mine Bitcoin blocks. At present, the mining power of Bitcoin’s network is 300 times more powerful than the world’s top 5 supercomputers combined.
Bitcoin mining seems crazy! Computers mining for virtual coins? Is Bitcoin mining just free money? Well, it’s much, much more than that! If you want the full explanation of Bitcoin mining, keep reading…
What is Bitcoin Mining?
Bitcoin mining is the backbone of the Bitcoin network. Miners provide security and confirm Bitcoin transactions. Without Bitcoin miners, the network would be attacked and dysfunctional. Bitcoin mining is done by specialized computers.
The role of miners is to secure the network and to process every Bitcoin transaction. Miners achieve this by solving a computational problem that allows them to chain together blocks of transactions (hence Bitcoin’s famous “blockchain”). For this service, miners are rewarded with newly-created Bitcoins and transaction fees.
The most interesting fact is that only 21 million Bitcoins will ever be created.
How Does it Work?
There are many aspects and functions of Bitcoin mining:
1. Issuance of new bitcoins
Traditional currencies, such as the dollar or euro, are issued by central banks. The central bank can issue new units of money ay anytime based on what they think will improve the economy.
Bitcoin is different. The issuance rate is set in the code, so miners cannot cheat the system or create bitcoins out of thin air. They have to use their computing power to generate new bitcoins.
2. Confirming transactions
Miners include transactions sent on the Bitcoin network in their blocks.
A transaction can only be considered secure and complete once it is included in a block. Why? Because only a when a transaction has been included in a block is it officially embedded into Bitcoin’s blockchain.
More confirmations are better for larger payments. Here is a visual so you have a better idea:
- Payments with 0 confirmations can still be reversed! Wait for at least one.
- One confirmation is enough for small Bitcoin payments less than $1,000.
- 3 confirmations are enough for payments $1,000 — $10,000 (most exchanges require 3 confirmations for deposits).
- 6 confirmations are enough for large payments between $10,000 — $1,000,000. Six is standard for most transactions to be considered secure.
3. Security
Miners secure the Bitcoin network by making it difficult to attack, alter or stop. The more miners that mine, the more the secure the network.
The only way to reverse Bitcoin transactions is to have more than 51% of the network hash power. Distributed hash power spread among many different miners keeps Bitcoin secure and safe.
How to Mine Bitcoins
Well, you can do it. However, it’s not profitable for most people as mining is a highly specialized industry. Most Bitcoin mining is done in large warehouses where there is cheap electricity.
If you really wanna try mining as a hobby, we’ll show you some steps you can take to get started mining bitcoins right now.
Step 1. Get Bitcoin Mining Hardware
You won’t be able to mine without an ASIC miner. ASIC miners are specialized computers that were built for the sole purpose of mining bitcoins. Don’t even try mining bitcoins on your home desktop or laptop computer! You will earn less than one penny per year and will waste money on electricity.
Step 2. Select a Mining Pool
Once you get your mining hardware, you need to select a mining pool. Without a mining pool, you would only receive a mining payout if you found a block on your own. This is called solo mining. We don’t recommend this because your hardware’s hash rate is very unlikely to be anywhere near enough to find a block solo mining.
By joining a mining pool you share your hash rate with the pool. Once the pool finds a block you get a payout based on the percent of hash rate contributed to the pool. If you contributed 1% of the pools hash rate, you’d get. 125 bitcoins out of the current 12.5 bitcoin block reward.
Step 3. Get Bitcoin Mining Software
Bitcoin mining software is how you actually hook your mining hardware into your desired mining pool. You need to use the software to point your hash rate at the pool. Also in the software, you tell the pool which Bitcoin address payouts should be sent to.
Step 4. Is Bitcoin Mining Legal in your Country? Make Sure!
This won’t be much of an issue in MOST countries.
Consult local counsel for further assistance in determining whether Bitcoin mining is legal and the tax implications of doing the activity. Like other businesses, you can usually write off your expenses that made your operation profitable, like electricity and hardware costs.
Step 5. Is Bitcoin Mining Profitable for You?
Do you understand what you need to do to start? You should run some calculations and see if Bitcoin mining will actually be profitable for you.
You can use a Bitcoin mining calculator to get a rough idea. I say rough idea because many factors related to your mining profitability are constantly changing. A doubling in the Bitcoin price could increase your profits by two.
But, It could also make mining that much more competitive that your profits remain the same.
There is another “funny” way to mine bitcoins on Android or iOS. Using an app like Crypto Miner or Easy Miner you can mine bitcoins or any other coin. You’ll likely make less than one penny PER YEAR!
Android phones simply are not powerful enough to match the mining hardware used by serious operations. So, it might be cool to set up a miner on your Android phone to see how it works. But don’t expect to make any money.
Do expect to waste a lot of your phone’s battery!
Stay tuned to find more things about Bitcoin and its Mining and Trading process in our coming articles. Find links below:
