What Is Bitcoin Mining?

What Is Bitcoin Mining?

In simple terms, Bitcoin mining is the process by which new BTC are created and entered into the Bitcoin circulation. Bitcoin mining is also how the Bitcoin network confirms new BTC transactions and is a critical component of the blockchain ledger’s ongoing maintenance and development.

The actual mining is performed using highly sophisticated computer hardware that solves an extremely complex computational math problem or puzzle in order to confirm the transaction. The first computer to find the solution to the puzzle will confirm the transaction and receive bitcoin rewards and the process starts again.

Although popular, cryptocurrency mining can be costly, complex and only sometimes rewarding. This depend on whether the cost of hardware and energy are outweigh by the number of Bitcoin mined and the market value of Bitcoin. Most Bitcoin mining are now done on a commercial scale with hyper fast computer hardware.

The BTC rewards that Bitcoin miners receive is an incentive and is what motivates all these miners to contribute to the primary purpose of mining, which is to confirm, legitimize and monitor Bitcoin transactions, ensuring their validity and adding the transactions to the blockchain.

Because many users are located all over the world, they all share these responsibilities. This is what makes Bitcoin a “decentralized” cryptocurrency, or one that does not rely on any central authority like a central bank or government to oversee its regulation.

mining crypto

How do I mine cryptocurrency?

When it comes to mining cryptocurrency there are steps involved to do it successfully. When you are ready to start mining crypto, here are the steps you need to follow:

  1. Choosing your preferred cryptocurrency to mine

    While there are many different cryptocurrencies you can mine, not all of them use the BTC “proof of work” method to verify their transactions. So you will need to find cryptocurrencies that use the proof of work method rather than the proof of stake method.

    The major cryptocurrency that uses proof of work is Bitcoin, which is the most popular cryptocurrency for mining. But there are also other cryptocurrencies that current use proof of work, these include : Ethereum (CRYPTO:ETH), Kadena (CRYPTO:KDA), Dogecoin (CRYPTO:DOGE), Litecoin (CRYPTO:LTC), Monero (CRYPTO:XMR), Bitcoin Cash (CRYPTO:BCH).

    Because Bitcoin is the most popular cryptocurrency being mined, and there are so many miners competing to earn BTC rewards, it’s quire difficult to make a profit with Bitcoin mining. So you should be open to consider mining other cryptocurrencies for a better return.

    So keeping that in mind, your best bet would probably be to start with Ethereum or some other less-popular cryptocurrency like Kadena. Depending on your method of choice, check out the prices, and calculate when your return on investment would happen, do some math and you’ll figure out if it is worth the investment.

    choose mining currency

  2. Buying your mining equipment

    Once you have picked a cryptocurrency you would like to mine, you should start looking at ASICs or GPUs that can be used to mine the cryptocurrency. Your choice of gear should also depend on the type of cryptocurrency mining that you’ve decide to do. These days a CPU isn’t good enough in terms of mining power since you’ll almost certainly produce very little crypto rewards per day.

    To compare the output of mining devices, you can use a mining profitability calculator for the cryptocurrency you want to start mining. These online calculators will let you plug in a machine’s hash rate and your electricity cost to see how much you will be able to make per day. You can then you can use that information to estimate how long it would take to pay off the cost of the mining device minus your electricity costs.

    If you want to mine for bitcoins, you will need special hi-tech hardware for your mining rig. This is because ordinary domestic computer CPUs are not powerful enough to mine bitcoin competitively in this day and age. Because Bitcoin is the most popular cryptocurrency, and much of the BTC allocated for mining rewards has already been mined, the algorithm’s complexity had to increase, which forced the need for more computing power. That’s why these days hardware consists of a specialized chips called an ASIC, which are powerful computer chips and the majority of miners now use ASIC chips.

    crypto mining setup

  3. Setting up a crypto wallet

    When you start mining cryptocurrency, you’re going to need somewhere to receive your rewards. What you need this a crypto wallet, and lucky for you this is very easy to find. For the specific cryptocurrency you are mining there will be a few compatible wallets, which will be recommended in the specific cryptocurrency’s website.

    For most cryptocurrencies, there are a variety of crypto wallets that are available free of charge. When you’ve set up your crypto wallet, you will be able to generate a wallet address where you can receive and safely store your cryptocurrency.

    crypto wallet

  4. Configuring your mining device

    Once you have your crypto mining device ready, there are a few things to do to get it ready and setup. Firstly, you need to download the mining software for that specific cryptocurrency. You should be able to easily find this software on the cryptocurrency’s website. New blocks are added to the blockchain by the software, and depending on the cryptocurrency mined, there can be several free software programs you can use.

    One important thing is to make sure you set up your mining device in a safe environment with the proper cooling systems and correct energy outputs. Crypto mining devices can generate quite a bit of heat, and they can be a fire risk if they are not well taken cared of in the right environment.

    crypto-mining software

  5. Joining a mining pool

    While it is definitely possible to mine cryptocurrency on your own, because of the competition out there, it may not be the best approach. This is because earning block rewards is much harder when you’re mining crypto alone.

    Despite the latest hardware and software updates, an individual alone would not be able to mine that much crypto rewards. The reason is because large mining farms backed by major mining companies make it very difficult for small miners to be competitive. A crypto mining pool provides a solution for smaller miners.

    For this reason, most miners opt to join available mining pools. Because a mining pool has a group of miners who are combining their efforts, it is more likely that the pool will get chosen to validate a block and earn block rewards. So there is strength in numbers. The group can use the combined computing power of individual miners to compete collectively with the large mining farms. The pool operator charges fees and rewards are somewhat lower than personal mining. However, by using a pool, you can ensure frequent crypto rewards.

    mining pool

So is cryptocurrency mining worth it?

The general consensus is that cryptocurrency mining isn’t worth it for an individual miner because it is very difficult to make a profit that can replace your normal salary. But for crypto enthusiasts, mining may be worthwhile as a side hustle or hobby and a way to possibly earn some extra money every month.

But to make reasonable money from crypto mining, you will need good hardware, using either an ASIC or a GPU. Many of the most popular hardware choices cost USD $1,000 and up.

Also depending on the cryptocurrency you mine and how its price fluctuates, breaking even on your mining hardware can take up to six months, a year, or even longer. And these devices also eventually become obsolete because of new technology or break down due to wear and tear.

Another thing to note is electricity costs in your country and its is a very important consideration. Crypto mining is usually very energy-intensive, and you won’t make much money if you don’t have access to cheap power.

crypto to mine

Ben Liau

Ben is seasoned digital and technology leader with years of experience in multiple industries. He is also a cryptocurrency and blockchain enthusiast.

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