Bitcoin Mining: Everything You Need to Know

Revolut Contributor

 · August 04, 2020  · 08/04/2020

Bitcoin mining plays a crucial role in the Bitcoin system, ensuring that transactions are securely recorded on the blockchain and enabling new currency to be released.

But what exactly is it, and how do you mine Bitcoin?

In this article, we’ll tell you all you need to know about this fascinating aspect of the crypto-world. So, what is bitcoin mining? Let’s take a look...

Cryptocurrency Mining: Explained

Before we talk about mining Bitcoin, we need to explain a little about how cryptocurrency works.

A Bitcoin miner makes up part of the cryptocurrency ecosystem, and without understanding that system, you won’t understand crypto mining.

To begin with, then, the details of every transaction made in a given cryptocurrency is recorded onto the blockchain, a digital ledger in which every constituent part (each “block”) takes a unique place in the whole system (the “chain”). It’s unique because every block, before it is added to the rest of the chain, needs to be given a singular cryptographic “hash”, or code, that verifies it and assures its correct place.

Once this hash is produced, the block is attached to the chain and is not modifiable. This makes the blockchain incredibly secure, but the hash is incredibly difficult to produce – and it is done through the process known as Bitcoin mining.

In this way, mining becomes the process through which the security of the whole cryptocurrency system is assured. And whilst this might seem as though “mining” is just a misnomer, the relevance of that comes in the process’s reward: a Bitcoin miner receives new Bitcoin at the end of it.

How Do You Mine for Bitcoins?

Mining for Bitcoin is not the easiest process in the world – and it is not like anyone can just do it. You need a fairly serious amount of gear, which involves an investment.

Remember, Bitcoin mining is about producing or finding that “hash” that verifies a block and enables it to be added to the blockchain. However, this is not an easy thing to do.

The hash – a 64-digit code in which each digit can be any one of 16 different characters – is usually described as the solution to a complex computational maths problem. However, as there is a huge amount of possibilities, that complexity cannot be understated.

As a result, mining involves a process of producing lots of different possible hashes very quickly, until the right one is found. Right now, the chances of finding the right hash is one in 14 trillion. And so, given that there is a reward – i.e. Bitcoin – for finding the hash first, you need to produce millions of hashes a second to find the correct one.

This is why you need the gear. Specifically, this is hardware that can produce these hashes as quickly as possible. The faster the better, because you are competing with about a million different miners, according to one estimate.

Is Bitcoin Mining Worth It?

The slim odds of finding the right hash, and the competition that you are up against, makes mining cryptocurrency a difficult game – and there is no guarantee that you will ever be rewarded. In this way, Bitcoin mining invites comparisons to literal mining for gold. But is it worth the effort?

After the initial investment in the hardware, there are running costs to Bitcoin mining. According to research published in MarketWatch, these can range between $500 and $26,000, for each Bitcoin, depending on where you are living. This is related to the cost of energy in each country, because Bitcoin mining uses a serious amount of computer power.

As a result, how worthwhile Bitcoin mining will be will depend on which country you are in. Because, if a Bitcoin is worth $7,000 at the time of writing, you might not want to spend three times that to mine it.

There are legal prohibitions on Bitcoin mining in a small handful of countries worldwide (at the time of writing). These include Bolivia, Nepal, Algeria, and Morocco, where cryptocurrency is banned completely, according to a report prepared by the Law Library of Congress.

Where crypto itself is banned, crypto mining is prohibited, too. However, according to the same report, Russia, whilst open to crypto, has placed taxes on any Bitcoin miner who exceeds a given amount of energy consumption due to mining.

Conclusion

So, what is Bitcoin mining? It does two things: it ensures that every transaction on the cryptocurrency network is verified, and it brings into the system new currency.

It’s this last part that gives the process its name, but you should think of miners not as actual miners: they mint new coins and provide security for the cryptocurrency as a whole. That’s it.

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