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WHAT IS BITCOIN MINING AND IS A PROFITABLE?

If you know the bitcoin you will have heard that bitcoin can be obtained from any computer by mining. The following post will give you a complete overview of what Bitcoin mining is and is it still profitable today.

HOW BITCOIN MINING WORKS?

Anyone can mine bitcoins without having any knowledge, you only need to guess a random number that solves an equation generated by the system. To do this process you need a computer, if the computer is very powerful you have more chances to guess the string of numbers and get more Bitcoin.

More detailed breakdown of the mining process:

1.-Once your mining computer comes up with the right guess, your mining program determines which of the current pending transactions will be grouped together into the next block of transactions. Compiling this block represents your moment of glory, as you’ve now become a temporary banker of Bitcoin who gets to update the Bitcoin transaction ledger known as the blockchain.

2.-The block that you have created together with the solution is sent to other computers in the world so that they can verify if it is valid.

3.-The system generates a fixed amount of bitcoins (currently 12.5) and rewards them to you as compensation for the time and energy you spent solving the math problem.

4.-They also pay you the transaction fees that are attached to the transactions you inserted in the next block.

5.-All the transactions you just sent now are validated by the Bitcoin network and are ready to be used.

Bitcoin mining is very easy to do, if you have a powerful computer you can have Bitcoin from your home with your computer.

As you can imagine, since mining is based on a form of guessing, for each block, a different miner will guess the number and be granted the right to update the blockchain. Of course, the miners with more computing power will succeed more often, but due to the law of statistical probability, it’s highly unlikely that the same miner will succeed every time.

MINING DIFFICULTY

The inventor of Bitcoin elaborated the rules that for the most power of mining has the most difficult network is to find a Bitcoin. This makes the process of mining Bitcoin self-adjusting by Bitcoin itself.

Why on earth did Satoshi do this?

The creator of Bitcoin wanted there to always be a steady stream of new bitcoins in the system, this he did to keep inflation under control. The average of mining says that every 10 minutes a new block is added.

Now, remember, this is on average. We can have two blocks being added minute after minute and then wait an hour for the next block. In the long run, this will even out to ten minutes on average.

As you can imagine, this type of self-adjusting mechanism has created a sort of “arms race” to get the most efficient and powerful miners as soon as possible.

BITCOIN MINERS

When Bitcoin was created there were no miners in the market. In the year 2009, just using a medium power computer could extract Bitcoin since it was very easy to guess the block chains. When the Bitcoin began to be known more people began to look for more powerful mining solutions.

Gradually, people moved to GPU mining. A GPU (graphics processing unit) is a special component added to computers to carry out more complex calculations. GPUs were originally intended to allow gamers to run computer games with intense graphics requirements. Because of their architecture, they became popular in the field of cryptography, and around 2011, people also started using them to mine bitcoins. For reference, the mining power of one GPU equals that of around 30 CPUs.

Then it continued to evolve with FPGA mining. The FPGA is a piece of mining that can be connected to a computer to make calculations. They are about 100 times more powerful than a CPU. One of the disadvantages is that they are difficult to configure.

Finally, around 2013, a new breed of miner was introduced: the ASIC miner. ASIC stands for application specific integrated circuit, and these were pieces of hardware manufactured solely for the purpose of mining Bitcoin. Unlike GPUs, CPUs, and FPGAs, they couldn’t be used to do anything else. Their function was hardcoded into the machine.

The ASIC brand are the most current and most sold miners (today). The first ASIC miners were USB, but they became obsolete quickly. But they have evolved very fast and now they have very powerful miners (very expensive)

After some years, the sale and creation of these miners began to stop, also because of the difficulty of the mining of Bitcoin.

BITCOIN MINING POOLS

If you want to buy a powerful Bitcoin miner you have to know that it will be very difficult to get large amounts of Bitcoin.

That’s why mining pools came into existence. The idea is simple: miners group together to form a “pool” (i.e., combine their mining power to compete more effectively). Once the pool manages to win the competition, the reward is spread out between the pool members depending on how much mining power each of them contributed. This way, even small miners can join the mining game and have a chance of earning Bitcoin (though they get only a part of the reward).

Today there are over a dozen large pools that compete for the chance to mine Bitcoin and update the ledger.

IS BITCOIN MINING PROFITABLE?

In this case the answer is NO.

Hash rate: A Hash is the mathematical problem the miner’s computer needs to solve. The hash rate refers to your miner’s performance (i.e., how many guesses your computer can make per second). Hash rate can be measured in MH/s (mega hash per second), GH/s (giga hash per second), TH/s (terra hash per second), and even PH/s (peta hash per second).

Difficulty increase per year: This is probably the most important and elusive variable of them all. The idea is that since no one can actually predict the rate of miners joining the network, neither can anyone predict how difficult it will be to mine in six weeks, six months, or six years from now. In fact, in all the time Bitcoin has existed, its profitability has dropped only a handful of times—even at times when the price was relatively low.

Bitcoin reward per block: The number of Bitcoins generated when a miner finds the solution. This number started at 50 bitcoins back in 2009, and it’s halved every 210,000 blocks (about four years). The current number of bitcoins awarded per block is 12.5. The last block-halving occurred in July 2016, and the next one will be in 2020.

Mining difficulty: A number that represents how hard it is to mine bitcoins at any given moment considering the amount of mining power currently active in the system.

Pool fees: If you’re mining through a mining pool (you should), then the pool will take a certain percentage of your earnings for rendering their service. Generally, this would be somewhere around 2%.

Electricity cost: How many dollars are you paying per kilowatt? You’ll need to find out your electricity rate in order to calculate profitability. This can usually be found on your monthly electricity bill. The reason this is important is that miners consume electricity, whether for powering up the miner or for cooling it down (these machines can get really hot).

Power consumption: Each miner consumes a different amount of energy. You’ll need to find out the exact power consumption of your miner before calculating profitability. This can be found easily with a quick search online or through this list. Power consumption is measured in watts.

Bitcoin’s price: Since no one knows what Bitcoin’s price will be in the future, it’s hard to predict whether Bitcoin mining will be profitable. If you are planning to convert your mined bitcoins to any other currency in the future, this variable will have a significant impact on profitability.

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