- Marco Fisher
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- Published: October 2, 2018
- Modified: January 13, 2021
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Do you want to know how to mine Bitcoin and what that actually means? Look no further! The methodology of Bitcoin Mining isn’t owned or centralized by any one entity so anyone who wants to dedicate computer power to it can jump in on this opportunity and learn how to mine Bitcoin!
The success behind Bitcoin and digital currency is only possible through the blockchain structure, and blockchain technology only exists thanks to an essential process called Bitcoin Mining.
Cryptocurrency, specifically Bitcoin, has been making waves in the news disrupting how the world looks at money as it moves from traditional fiat or money currency to something more independent from governments and digital. The need for volunteers to assist in mining Bitcoins keeps growing and, while it can be a lot of work, knowing how to mine Bitcoin can be quite rewarding as well.
So what is Bitcoin Mining? Would it be a worthy investment to jump into? You’ll find out in this article and how easy it is to get started!
Learning How to Mine Bitcoin
Here is an overview of what you will learn in this article about Bitcoin:
Learning How to Mine Bitcoin
Why Should You Mine Bitcoins
How Does Bitcoin Mining Work?
What Do You Need for Bitcoin Mining?
Is it Legal to Mine Bitcoins?
It is Profitable to Mine Bitcoins?
Bitcoin mining is the backbone of blockchain technology and, therefore, the existence of Bitcoin itself. Mining helps facilitate the creation of new Bitcoins but more importantly ensures the security and confirmation of transactions to be embedded into blockchains.
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Are there Specific Requirements for Bitcoin Mining?
Knowing how to mine Bitcoins includes being aware of very specific requirements. To keep up with the creation, confirmation and security of Bitcoins, one would need a smooth and consistent operation set up.
The reason for this is partly due to the rewards system setup for miners. The first miner(s) to confirm that a transaction is 100% authentic to be embedded into the blockchain is also awarded with 1 Bitcoin (of which the value is consistently thousands of American Dollars). This is why mining can make you a lot of money with Bitcoin.
The other reason is for the consumers: Buying and selling with Bitcoin needs to operate at the same efficiency as regular transactions…no one wants to wait an hour or so to confirm that they have bought or sold groceries! The faster a transaction is confirmed, the faster people can get on with their lives.
So knowing how to efficiently and quickly mine Bitcoin not only requires miners to accurately confirm transactions, but also do so as quickly as possible in order to be awarded.
On the practical end, it does require an initial investment in the form of specialized computers, mining software, and a reliable source of electricity and regulated conditions in order to get and keep a mining hub operational
If millions of people are looking to make transactions with Bitcoins on a daily basis, miners would not only need more than a basic knowledge of know how to mine Bitcoins, but also guarantee the security and confirm the transactions as fast and flawlessly as possible–especially if they want to be consistently awarded with a newly issued Bitcoin.
Due to these requirements, a miner’s technological set up (the correct computer system, software and electricity source) is paramount.
Why Should You Mine Bitcoins
As mentioned before, successful miners are rewarded with newly issued Bitcoins for every confirmed transaction that is added to a blockchain. Knowing how to mine Bitcoins is an alternative way to earn them without having to exchange or buy through a fiat currency and a great way to make money online (which is what our website is about).
For many who believe in cryptocurrency as the future of money, mining Bitcoins and participating in the creation of something new is an exciting venture.
While bitcoin mining can be rewarding, it does take some time and dedication. There are, of course, other ways to make fast money or supplement your income, but it all depends on what you enjoy and what you want. If you are serious about mining Bitcoin and invest time and capital into it, there’s no doubt you will turn a profit sooner rather than later.
If you are looking for a platform to just buy and trade Bitcoin, we have plenty of guides to do just that of course. We would recommend using Coinbase if you want to go that route, as it offers the most advantages. You can check it out right here!
How Does Bitcoin Mining Work?
Before we go into more details, you have to know that Bitcoin mining fulfills, at its core, 3 important functions:
Distribution of new Bitcoins
From the moment Bitcoin was created until it reaches its market cap (somewhere in the 22nd century), one new Bitcoin is released every 10 minutes. Since Bitcoin isn’t printed on paper, the code created around the allocation of Bitcoin is set so it cannot be falsified by other miners. There cannot be inflation or overproduction.
Confirm Bitcoin transactions
When someone buys, sells or trades Bitcoins, they create a transaction that is added to its blockchain. With fiat currency, any transaction made will come with a receipt that one will use to prove the legitimacy of the purchase or trade.
In a similar manner, receipts of code are added to each Bitcoin transaction that has to be confirmed by multiple sources. Essentially, this means that miners from around the world will process the same transactions to ensure that everyone’s codes match up.
In other words, miners compare the buyer’s and seller’s receipts to make sure that the transactions are genuine. Once confirmed, the genuine transaction is added to the blockchain permanently.
Secure the Bitcoin blockchain network
The mining process of confirming Bitcoin transactions also doubles as a very intense way to create security for the blockchain itself. By having multiple miners working to confirm transactions, is impossible for someone to create fake transactions or alter or halt a transaction.
Now that we’re clear on its functions, let’s continue with what a Bitcoin looks like in its raw form: it’s a long string of code that cannot be duplicated or altered. When there is a confirmed transaction, that transaction is permanently added to the code of Bitcoin to build a blockchain.
The job of Bitcoin miners is to compare strings of code with their corresponding transactions to make sure they match between the sender and receiver. Once this is completed the transaction itself will be added to the blockchain. The first miner or mining pool to confirm this is then rewarded with a newly issued Bitcoin. This means that mining is also a race to accurately win a confirmed string of code first.
Getting The Tools: What Do You Need for Bitcoin Mining?
OK, so now you might be interested, but how do you start Bitcoin mining?
Let’s start with the basics:
ASIC Miner
ASIC or Application Specific Integrated Circuits is a specific type of computer designed especially with how to mine Bitcoin in mind.
While Bitcoin was designed to possibly be mined through a regular computer CPU, coders found a faster and and more effective way to integrate better technology into the hashing or processing power of mining. They then created a new computer specially designed for serious miners so they can process Bitcoin transactions as fast as possible.
Bitcoin Mining Software
Obviously having a powerful computer means nothing if you don’t have the right software installed. There are a few options here, as there is software created to be compatible with Linux, Windows and Mac processors.
If you are joining a mining pool – which is highly recommended, some software is a better choice than others.This is so you can combine your resources with other miners’ to essentially join powers and confirm blockchain transactions faster.
This is because he mining software will also increase your hashrate or processing rate in the pool so you have a higher chance to confirm transactions faster and thus be paid more frequently (in Bitcoins directly to your Bitcoin Wallet).
Steady Electricity Supply
One disadvantage or advantage depending on where you are is the need for a steady and reliable electrical supply. Due to the need for consistent power to continuously process transactions, miners need to have their equipment set up in a place where there is steady electricity and is safe for computers to run 24/7.
For example, many mining locations are set up in a temperature controlled warehouse with hundreds of ASIC computers constantly processing transactions.
In light of these facts, it isn’t recommended for someone to Bitcoin mine alone as a hobby on their personal computer: A personal computer simply doesn’t have the capacity and speed to mine transactions fast enough.
Essentially, due to the growth and uses of Bitcoin, it really takes a dedicated collection of computers set up only for mining. Even though you’ll have to divide up the profit between all the miners, that’s still a potentially significant amount if your pool is consistently mining coins.
Is it Legal to Mine Bitcoins?
Despite Bitcoin making huge splashes on news headlines in recent history, companies and governments are still wary of digital currency and often look for ways to regulate cryptocurrency. Some countries have banned it all together while others are trying to set up safeguards to protect users and investors from scams.
Which is ironic given the intrinsic safeguards in place for Bitcoin, compared to traditional money and its massive potential for scamming and fraude.
Therefore depending on where you are, we at MoolahNinjas recommend you check the local laws first before you set up shop as a miner. If it is legal to mine, make sure you comply with your local tax laws as well.
Important tip: While most places may permit Bitcoin mining, don’t overlook electrical codes and consumption needs before you start mining. Whenever anyone has high powered computers running 24/7 constantly consuming energy and generating heat, there is not only a risk that your local electrical company might not be able to supply adequate power, but also an increased possibility of a fire hazard.
It’s recommended that when you are setting up your mining centre that you have a certified electrician assist in making sure that your computers are safe and well ventilated. They should also check that your cables are safe from elements, sudden energy loss or spikes, and other unexpected possibilities.
The last thing anyone would want to see is their investment go up in flames cause they tried to cut corners on their wire circuits!
Finally the biggest and most important question for anyone who might be interested in how to mine Bitcoin: is there money to made?
Is it Profitable to Mine Bitcoins?
Here are a few things to consider when measuring the profitability of Bitcoin mining:
Electricity Costs
Since Bitcoin mining is a power hungry venture, it usually is more advantageous to mine where electricity costs are affordable. You don’t want your electricity costs (or operation fees in that case) to outweigh the earnings you would get from mining Bitcoins.
Bitcoin’s Volatility
Due to the necessity for extremely powerful hardware and dedicated software, you’ll have decide beforehand if Bitcoin mining really is for you. It’s not something you can jump into right away, you’ll need planning and an initial capital injection if you’re serious about it.
Membership of a mining pool
As we’ve mentioned earlier, it’s really not a great idea to go at it alone. In order to be successful and make a lot of money from mining, you’re gonna need to join a mining pool. Sure you’ll have to share the profit, but better a small part of the pie than no pie at all, right?
The best option to do this is via Cloud mining: renting mining hardware and software from dedicated providers. You pay them a fee and they do the mining for you.
Cloud mining is highly recommended as it is very easy to understand and requires almost no initial investment. If you’re interested in this, you can check out Genesis Mining, ECOS and Hashflare, three providers we recommend.
Bitcoin’s Volatility
While there’s plenty of opportunity for cryptocurrency to grow and develop, it is also volatile with its value fluctuating from day to day. So before you decide to jump into mining, make sure you look at it as a long term investment and not just a trendy fad.
In addition, there are several Bitcoin calculators that are available so you can start plugging in numbers to really figure out if the return on investment with Bitcoin mining is worth your time.
Bitcoin and the future of cryptocurrency is not only been a hot topic but also an exciting venture and potential for profit for many as we shift more and more toward the world of digital currency.
Knowing how to mine Bitcoin has proven to be an integral piece of the puzzle. Even if you’re not interested in becoming a miner yourself, knowing how it works will make you more savvy on this this topic and help you in your further investing adventures in the Bitcoin world!
