"I am very excited about the prospect of using cryptocurrency, not just as a money equivalent, but using it as a way to earn something as a result of doing some type of work." -William Mougayar
Since their creation, cryptocurrencies have piqued many investors, bankers, and business people as a replacement and solution to paper money and centralised currency. Using a single currency that is both digital and decentralised seems to make sense in our digital age, where almost everything is now completed online.
You could say that cryptocurrency is equivalent to the bartering principle of the early ages and the paper money that we use today; cryptocurrency is a money equivalent for the modern age.
However, since it's relatively new, there are many questions about cryptocurrency that remain unanswered for most individuals like, how does it work? Can I use cryptocurrency everywhere? Is there one type of cryptocurrency that is better than all the rest? What is cryptocurrency mining?
Questions about cryptocurrency are valid and are a good thing. Why's that? Well, it's something revolutionary, yet when the questions are answered, the logic and convenience of cryptocurrency convince people that it is the way of the future.
Without further ado, in today's article, we shall answer questions relating to how Bitcoin and other cryptocurrencies are mined. Let's get mining!
A Brief Description of How Bitcoin is Mined
Before getting started and providing information about how cryptocurrency is mined, it's essential to focus on how cryptocurrency began. When Bitcoin was created in January 2009 by Satoshi Nakamoto, it was the first cryptocurrency to be invented, and that is when crypto mining began.
The rules and methods of mining cryptocurrency in the "rig" vary greatly depending on the cryptocurrency you use. However, it is essential to state that to make mining cryptocurrency understandable for everyone; we shall focus on the cryptocurrency that is the most mined in the world today: Bitcoin.
Satoshi Nakamoto established the rules of mining Bitcoin to reward miners for their hard work verifying bitcoin transactions to make sure that "double spending" the crypto was under control and properly managed. The same concept is transferred across all other digital currencies, such as Ether, Monaro, and ZCash, to name a few.
Bitcoin miners scan through thousands of Bitcoin transactions and movements to ensure that no one has tried to use the same amount of coin twice. As per the rules, once miners have verified 1MB worth of bitcoin transactions known as the "block", they may receive their payday of a certain amount of Bitcoin awarded.
It's important to mention that 1MB, or a block, can be one significant transaction that must be verified or thousands of small ones; each transaction is unique in the amount of data it takes.
Nonetheless, miners do not simply get awarded a Bitcoin after simply verifying 1MB of transactions.
No, no, that would be much too easy!
Miners must also complete the second condition, which is solely based on luck. How's that? After checking all the 1MB of Bitcoin transactions, they must also be the first of the miners to solve the numeric problem before all the others correctly.
The second part is almost like pure gambling, and, if you guess correctly, you are allowed to verify the next block of 1MB and uncover a fresh new Bitcoin coin!
You don't have to be good in math to solve the secret 64 digit code; you have to have a little patience and time on your hands. But, how much can a cryptocurrency miner make every year? Keep on reading to find out more!
How Much Can a Bitcoin Miner Make?
Since miners only receive their payday when they have completed all the necessary steps to mine a cone as per the rules established by the creators of said cryptocurrency, it's worth mentioning that miners could spend a lot of time and earn very little money.
Nonetheless, the money that you could earn by investing in mining Bitcoin is a great incentive to push forward. How's that? It's important to state that BTC rewards are halved every four years. The following list highlights the rewards for bitcoin mining throughout the years:
- 2009: 50 BTC was the reward,
- 2012: 25 BTC was given to miners,
- 2016: 12.5 BTC was rewarded to miners,
- 2020: 6.25 BTC was awarded.
The next time the block value will be halved is in 2024. But how does the previously mentioned list have anything to do with how much a Bitcoin miner makes? Well, it's important to state that once the block of 1MB transactions and the 64 digit code have been guessed, a miner is awarded the value of the block multiplied by the market value of Bitcoin.
Are we still confused? Don't worry; it's complicated stuff! So, for instance, since we're in 2021, the block is worth 6.25 BTC, multiplied by the current value of Bitcoin. So, according to today's stock market value, that would be 6.25 x $37,092, for a total of $231,825. Don't too shabby!
What about other cryptocurrencies such as Ether and ZCash? How are they mined? Keep on reading to find out more!
Taking a Look at How Ether is Mined
Second to Bitcoin in value and popularity, Ether (ETH) can also be mined by miners. Though mining principles are pretty similar to those of Bitcoin, Ether miners have a few different rules.
However, before we mention the rules of Ether mining, it is essential to state that shortly, Ether will switch to proof-of-stake. Staking is different from traditional mining since there is less dependence on miners from all parts of the world looking to get rich quickly. The blockchain system will change when Ether implements these adjustments, but that doesn't mean that miners can't take advantage of the Proof of Work (PoW) while still valid!
Ethereum mining is well supported by many well-recognised mining systems that validate transactions and complete Smart Contracts.
To successfully mine Ether, most individuals participate in mining pools like SparkPool, NanoPool, and others. It takes about 12 seconds to mine the Ethereum network, which is worth 3 Ether.
The basics of mining Ether are the same as Bitcoin since miners work for block rewards to ensure that the cryptocurrency is safe and used correctly. To become profitable as an Ether miner, it is wise to have built a successful mining farm that doesn't use up too much energy or electricity. Many good miners have moved their Ether rigs to a place where electricity is cheap, and they can make the most bang for their buck mining Ether and acquiring blocks.
Though a bit more complex than Ether, it is worth stating that Bitcoin mining is slightly more profitable.
While it is possible to mine other cryptocurrencies such as Ethereum Classic, Monero, and ZCash, the most common mining activity is completed by those who have Bitcoin and Ether rigs.
Also, it is worth stating that many countries have outright banned cryptocurrency mining. So, make sure that in your geographical region, it is still permitted and not considered an illegal activity.
What are the pros and cons of mining cryptocurrency? Check out the following subheading!
What are the Pros and Cons of Crypto Mining?
Like absolutely everything in life, there are benefits and drawbacks to mining cryptocurrency. Such as? Without further ado, before you get convinced to start your mining rig, we'll take a look at the pros and cons of mining cryptocurrency.
The Advantages of Mining Crypto
If you're optimistic and swayed by positive thinking, the following benefits of mining cryptocurrency will inspire you to get started ASAP:
- You Can Make Good Money: if you've got the proper computer hardware, the resources to pay for the electricity, and the patience to verify data and guess correct codes, you can make quite a lot of cash mining cryptocurrency. The motivation to make good money has motivated a lot of people to mine cryptocurrency.
- You're Contributing to the Growth of Crypto: when it comes done it, mining cryptocurrency isn't just about yourself and the money that you can make since miners contribute to the overall growth of crypto. If miners were not working hard as they do, cryptocurrency would be worth nothing. And, since cryptocurrency is the way of the future, you're contributing to making the future a better place!
The Disadvantages of Mining Crypto
Although it's mostly a good thing, there are some disadvantages to mining cryptocurrency. Such as? The following are two of the most significant drawbacks of becoming a crypto-miner:
- Astronomically High Electricity Bills: Most people know about cryptocurrency mining because the electricity costs linked to having a mining rig are very high. The electricity usage is so intensive that many crypto companies now receive unfavourable comments from ecologists. Some estimates claim that mining cryptocurrency requires the amount of electricity needed to power a small country. I don't think your landlord would appreciate those electricity fees!
- Hardware Costs: high-end computer hardware such as a graphics processing unit (GPU) and an application-specific integrated circuit (ASIC) are needed to power and keep a crypto mining rig going. These hardware pieces are expensive and, at most online retailers, currently out of stock.
In conclusion, while mining cryptocurrency is quite a process, to keep the dream of a digital currency alive, crypto-miners are needed in today's virtual world!