What is Bitcoin Mining?
There’s been much buzz around Bitcoin of late, which has already smashed through a whopping $7,000 in the first week of November 2017. Traded by millions all over the world, Bitcoin once more made the headlines with this phenomenal appreciation in its value, attracting more and more traders to invest in it. Investing in Bitcoin is a Wow business, only if you know your rise and limits, while the market is fluctuating. However, apart from this, how well you know what generates Bitcoin to be available in the public ledger? The process is known as Bitcoin Mining.
Introduction to Bitcoin Mining
Bitcoin mining is a peer-to-peer computer puzzle, employed to protect and verify all bitcoin transactions; i.e. making payments on a decentralized network from one user to another. Mining process involves transferring bitcoin (in the form of Transaction Data) to the Bitcoin Global Public Ledger. These transactions are made in groups and each transaction group is addressed as ‘Block.’ These blocks are typically protected by Bitcoin miners and placed on top of each other, building a chain. The record of your past transactions is called ‘Blockchain’ and it acts to authorize transactions made to the rest of the network as having occurred already. Well, apart from this, there are Bitcoin Nodes, who own and use the Blockchain as a full client and share blocks plus transaction across the network. Block nodes also differentiate authentic bitcoin transactions from the attempts made in order to re-spend the coins.
What is Proof-of-Work?
Bitcoin mining is among the most well-thought computer math, designed as resource-intensive. It is built difficult so that miners could not find as many blocks as they desire and as a result the number of shared blocks remains steady over the time. Each block contains proof-of-work (PoW) to be measured valid. PoW is a measure of how the monetary supply remains finite and controlled. PoW is typically substantiated by Bitcoin nodes every time they receive a block request. There should not be any double-spending and this is why Bitcoin is secured by PoW. This makes the Bitcoin ledger absolute and relative.
How does mining generate new bitcoins?
The primary motive of mining is to countenance Bitcoin nodes to reach a secure, invasion-resistant agreement. It’s a mechanism through which new Bitcoins are introduced into the system. Miners, on solving more blocks, are paid fees (in the form of Bitcoins) and they also enjoy subsidy of freshly generated coins – known as Block Rewards. Both of these transactions help distribute new Bitcoins on a decentralized network and also encourage people to impart protection for the system via mining.
A few things to know about Bitcoin Mining Pools
In the past few years, an increase in hashrate (Bitcoin mining power) has been observed, making things difficult for the miners to solve blocks single-handedly and earn as much block rewards as they want. To reimburse this, pool mining was introduced into the system. It is an approach wherein miners contribute to block generation only to split the block rewards as per the subsidized processing power.
More into the matter…
Generally, Bitcoin mining pool offers a set of 12 payout methods, of which PPLNS (Pay Per Last N Shares) and Pay Per Share (PPS) are the most used. Mining can be highly competitive at times, as its primary purpose is to find or solve the Blocks before anyone else’s miner does. On successfully solving blocks, you’ll receive block rewards coupled with transaction fees from the nodes. As there’s been quite hike in the hashrate in the past few years, mining has been made a little hard, and thus earning the payout rewards too. Pool mining actually simplifies the process for the beginners.
Mining pool is designed to get connections from global miners and pool their hashrate collectively so that mining with increased total hashrate can be possible. While doing this, the discrepancy of solving blocks rises as there come higher total hashrate while attempting to
process the block as fast as possible. With multiple types of mining pool payout methods, one can pick the one that is best for him or her, based upon personal requisites.
Choosing a Bitcoin mining pool should be based on which pool seems to be the fairest and which can bring you maximum payouts for the investment. Most mining pools are fairly designed though and also offer fair payouts, but that depends upon the type of pool approach.
Here is a couple of mining pool payout approaches that will help you make informed decision while choosing the mining pool.
Pay Per Share (PPS)
PPS or Pay Per Share approach is used to provide a prompt flat payout for each shared block. The payout is typically made from existing pool balance and can so be drawn-out instantly, not waiting for any block to be solved or established. In this pool payout approach, the chances for cheating the miners by the pool operators are brought to zero and so are the timing attacks.
In this process, miners get to pass on all the risks to the pool operator, resulting in variance. Moreover, the resulting loss probabilities for the server are counterbalanced by situating a payout lesser than the full estimated value.
Pay Per Last N Shares (PPLNS)
PPLNS is to make higher payouts. It offers you a range of fluctuations within 24 hours of payout, but it better suits the uncompromising and committed miner. PPLNS is for the traders who wish to mine as quickly as possible.
One thing that must be remembered while choosing the pool is its global hash rate, and whether you are able to select a pool that might not possess highest hash rate. While doing so, you concurrently reinforce smaller pools and blowout the hashrate to help in mining decentralization. This apart, consider choosing a mining pool with nodes nearest to where your miners are situated. For your information, pool nodes are mostly fair and fine worldwide, and they also help with lower latency and lost shares.
Some Bitcoin Mining Pools come to offer both the payout approaches discussed above, allowing you to start mining at competitive price and also give cloud mining contracts, which is meant to harvest the profitability.
Now, as some question the advantage of mining, let’s talk it out
Some bitcoin miners get into mining as a hobby and because it pays something back. If you were to estimate the time and capital amount spent in building and operating the rigs, at the market rate for the efforts, you can see very few miners earned profits. Large-scale mining operations that intend to benefit from scale economies, are as well few in numbers when it comes to showing the profit. Now come those miners, who aren’t even playing directly for power.
Just remember one thing that miners contest for a little amount over an average amount of $1 million dollars. Like this, there are thousands more miners, participating and actually playing for a small amount.
Cryptocurrency and the benefits of bitcoin mining
Like the rest of the world, you too must have heard of Cryptocurrency, especially Bitcoin, but what most have no idea about is how to mine it. There’s been a common inquiry ever since, how to mine something that has no physical actuality; for this you have to understand what exactly bitcoin is.
Bitcoin is a digital currency which has started to be accepted as a payment type. A number of retailers and e-commerce stores like Amazon.com, Overstock.com, Expedia, eGifter, Newegg, Dish and Shopify accept Bitcoin as a payment type. Digital currency, as the name suggests, has no physical existence and this is something that simply does not fascinate the financial experts much. For not being regulated by Governments or any other financial agencies, Bitcoin has always caught up controversies worldwide amidst its sky-high price rise. The exchange rate
between BTC/USD has now reached a different level altogether. Crashing through $6,900, Bitcoin is again set to lead the Cryptocurrency market, as always.
If we see a few years back when Bitcoin was first launched in the year 2009, there was basically no transaction made. In the following years, especially in 2011, Bitcoin came up at par with Dollar, with 1 Bitcoin = 1 Dollar. However, the world got a big surprise in 2013. The price hiked up to $266 = 1 Bitcoin, followed by a decent drop in the very same year, with $130 being valued equal to one Bitcoin. Yet, it was considered stable. Subsequently, from 2014 to 2016, the market saw immense rise in the price of Bitcoin and as of 15th Nov, 2017, 1 Bitcoin was priced at $6964.81.
However, what is the point of recalling history, unless you don’t understand how you can mine it?
So, here is the process explained for you.
- Buy a customized mining hardware
When Bitcoin was first launched, one could mine only using the desktop’s GPU and CPU. While today it is still in trend, outcomes make it inappropriate to mine the bitcoins using a desktop’s hardware and limited computing capabilities. A trader not only invests its efforts, but also consumes more electricity than mining coins in the process. Now, custom mining hardware is available in a card form that you have to insert into your computer slot, much like you insert the DISH Card. Bitcoin Ultra, Butterfly Labs and CoinTerra are some of the leading companies offering bitcoin mining hardware. If you are looking for a dedicated Bitcoin mining hardware, make sure you have a good budget, because it will cost you dearly. Starting from few dollars to thousands, depending upon how many operations it is capable to complete, the price of the hardware will vary.
- Get a Bitcoin wallet
You have to get a digital wallet, where your Bitcoins-to-be-earned will be stored. This wallet is fully-encrypted in order to keep the hackers at bay. Bitcoin wallets can be availed either locally or online, known as Local Wallet and Online Wallet. Since security is priority in trading business, people prefer to hold local wallet since the server that hosts your online wallet has no accessibility to it, and hence no third party credential records. You may lose all your earnings stored in online wallet at once, if any disaster happens at the hosting server’s end.
It though takes nothing much to setup a local wallet except the verification of Blockchain, which is on the other hand the record book of all bitcoin transactions done by you so far.
- Time to secure the wallet
To earn the ownership of your wallet, you have to secure its accessibility and make it limited to you only. Else, online wallets basically have no security; anyone who gets to access it can use your coins. In order to protect Bitcoin wallets, crypto trading brokers use two-factor or sometimes three-factor authentication security. Being a wallet owner, all you have to do is enable the two-factor authentication and store the wallet on your device that has no internet connection. If your device is running out of space, you can use the space left on your SD card also.
- Choose between going alone or joining the pool
When it is finally the time to start mining Bitcoins, you come to decide between whether you want to go alone or joining the pool will serve your needs better. While joining the pool will allow you to distribute resources and divide the rewards that will consequently bring faster outcomes, mining alone is hard since earning new Bitcoins has gotten more than just complicated today.
- Install the latest mining program
For your information, there is no cost involved in mining program installation. Most programs are open source and accessible at no cost. You will find a range of Bitcoin mining programs, but your selection completely depends upon your Bitcoin mining hardware. Make a note that Bitcoin programs are command bound and do need a set of files to get started properly, especially when you are linked to a pool. BFGminer and CGminer are amongst the most popular mining programs that run on graphical interface. It has details on how to connect the miner with pool mining program. In any case, if you are mining alone, make sure your Bitcoin wallet is connected with the mining program. This will help in depositing your earnings to the wallet automatically.
- Run the miner now
On successfully configuring the mining software, it’s time to begin the process. The batch file you have created in the beginning needs to be run now, but only if necessary. Moreover, keep your eyes on the miner connection while the operation is on. Most of the times, the rest of the computer programs go slow while the miner works.
- Monitor the temperature
Remember, mining programs are too strong that they use the hardware to its limits. Conditions get even worse when you are not using a hardware which is mining-compatible. For this to keep a check on, you can use SpeedFan program. This will ensure that your system’s temperature does not go beyond the safe limit. Graphic cards do no let your system’s temperature go beyond 80 Degree Celsius, i.e. 176 Degree Fahrenheit, thus allowing the hardware to perform at its best efficiency.
- Lastly, do not forget to check your profitability
Now that you have been mining for a little while now, it’s the right time to pause and check your figures. Remember, your aim is to make it either equal or more than the investment. However, in Bitcoin mining, it is the otherwise most times.
What is the future of Bitcoin Mining?
It’s even less than a decade when the Bitcoin was invented, but what surprises more, is the incredible spread and proud rise of this euphoric digital coin. Following the undreamed-of rise of Bitcoin, the market witnessed the emergence of more crypto currencies, but none could beat the credibility and competence of Bitcoin till date.
Increasing number of Individuals and businesses across the world are investing in Bitcoins. While some with abundant capital are buying the coin, some think mining is more advantageous. Now, why not we just check out how mining bitcoin takes an edge over buying it.
Despite such high rise of Bitcoin, its usage is limited and the mining digital currency is still a new concept. Experts say, it will take some more time to be welcomed by the society at large. A majority of people simply can’t imagine investing in something that has no physical entity; similar is the perception of some experts. They rather say that bitcoin is no future money and a day will come when its investors will re-think the matter.
Anyways, let’s just put what is and what not aside and get back to brooding over ‘how Bitcoin mining is benefiting the world?’ Here are the key pointers.
- A well-timed miner has the potential to make the most of their every mining attempt.
- Mining lets you track your transactions. Be known that bitcoins are never tainted.
- There is no commission fee involved with the coin acquisition other than the expenses in hardware.