Bitcoin mining has become a lucrative venture not just for commercial bitcoin miners but also for the average joe. This Bitcoin mining guide was created so people can have a basic understanding in the process behind Bitcoin mining.
When we were doing the research to create this Bitcoin mining guide, one of the biggest problems we faced was that most sites and information was written for an advanced user. We are not professional programmers so we decided to write a guide that the average person could understand.
What is Bitcoin Mining?
Most of us already know that Bitcoin is a digital currency that is bought and sold on a daily basis. However, what many people don’t know is how a Bitcoin is created or how a Bitcoin can be sent across the world in a matter of minutes.
These processes can be simplified when we talk about the function of Bitcoin Mining.
Miners are the ones who mine bitcoins and this activity works for two purposes:
- To generate more bitcoins.
- To process a transaction, releasing a new block into the blockchain.
Basically, people use their computer power to solve complex puzzles before other people. If the miner is able to solve the puzzle before anyone else, then they are acknowledged as creating a new block on the Blockchain.
The Block Reward
The “Block Reward” is the amount or portion of a bitcoin that is given to the miner that contributed towards the validation of a block.
As a reward for creating a new block, the miner is rewarded Bitcoins for their service. Currently the block reward is 12.5 Bitcoins and this value is halved every 4 years on average or every 210,000 blocks.
The more computing power a person has, the more likely they are to solve a block. Bitcoin Mining is resource-intensive and designed to be difficult so that the number of blocks found each day by miners remains steady. Each new block contains a proof of work so everyone on the blockchain knows that each block wasn’t fraudulently created.
This process is called Bitcoin Mining and to some extend resembles the mining of other commodities such as gold. Much like gold, there is a fixed supply of 21 million bitcoins.
Transaction Fees and Bitcoin Mining
Every time a person sends bitcoin from one wallet to another, there is a transaction fee. To be able to send bitcoin from your wallet to another wallet, this transaction must first be authenticated. Much like mining new Bitcoins, people use their computing power to approve these transactions and ultimately, accounting for every single bitcoin. Each transaction is authenticated by multiple miners.
If a miner has contributed towards verifying a transaction, then each miner is rewarded a portion of the fee paid. Transaction fees make up a majority of income for Bitcoin miners as the odds of mining a new block on the blockchain is slim. However, your chance of receiving a block reward improves if you join a mining pool.
The truth is that a majority of bitcoin mining is done on a commercial level where the cost of electricity is low. Most people who consider mining are often deterred because they believe their opportunity has passed.
Well you don’t have to be a big time miner to make a profit. In fact, many miners operate one or two GPU’s or ASIC mining machines as a form of income.
Small time miners join Mining Pools which is basically a group of miners pooling their computing power. Together, miners are more likely to mine a new block and all rewards a shared evenly according to the amount of work they contributed to the probability of finding a block.
Bitcoin Mining Hardware
There are two types of hardware used in Bitcoin Mining. They are GPU Miners and ASIC Miners. In the coming weeks we plan to write a comprehensive guide comparing GPU and ASIC miners but we will just cover the basics for now.
ASIC Miners | Application-Specific Integrated Circuit
ASIC miners are specifically designed to mine a specific coin and designed to be more efficient then GPU miners. More importantly, they use less power and have a higher hash rate. The downside of ASIC miners is the high entry cost but in the long term they are more profitable.
GPU Miners | Graphics Processing Unit
GPU miners are not as efficient as ASIC miners but they have the ability to mine any coin. You can effectively switch between different coins as they become more profitable to mine. They can also be re-purposed if mining is not longer profitable and have a high re-sale value.