Bitcoin mining is a complex topic with a lot of people having difficulties wrapping their heads around it. Well, worry no more! as we are convinced that after reading this article, you will be well informed about all the important things you need to know about bitcoin mining.
So What is Bitcoin Mining?
From our basic science, we know that mining is the process of getting minerals from under the ground. Well, Bitcoin mining is basically the same thing, only that this time, the ‘mining’ is an electronic process and the ‘mineral’ (i.e bitcoin) is not tangible/gotten from under the ground! They both share some similarities however, as both involve hardwork , dedication and a lot of capital investment.
Simply put, bitcoin mining is the process by which bitcoin transactions are added to public ledger. This process helps the bitcoin to function as intended and ensures that new bitcoins are introduced to digital wallets globally.
Now, let us give you a simple analogy to further aid your understanding of what bitcoin mining really is. We all know that our traditional currencies are handled by banks who confirm when a transaction occurs. We also know that our central banks handles the production of new currencies. Well in cryptocurrencies like bitcoin, ‘miners’ play the roles of these institutions. They confirm bitcoin transactions, by giving it their seal of approval (i.e. mining) using a number of bitcoin nodes. In this process, these miners, using very sophisticated softwares and hardwares, create new bitcoins to add to the general circulation, whilst facilitating various transactions that make bitcoin an acceptable and functional e-currency.
These miners in return, are rewarded with transaction fees of those making the transactions as well as some bitcoins. This is done to encourage the practice.
Bitcoin mining can be a very lucrative venture for those who can afford the mental and financial involvement required to accomplish it. As at early 2018, the rewards for mining a bitcoin block was 12.5 bitcoins which is worth around $125,000. Do the maths and see how much you would be making in Naira!
Note however, that as rewarding as bitcoin mining can be, it can also be very risky as the final reward is not guaranteed. Which is why it is becoming increasingly popular these days, to see miners coming together to form a pool working on the same block. These miners share the rewards accrued from the block. This process makes the task a bit easier and increases the chances of success. It however, reduces the reward due to each miner at the end of the task.
So in summary, here are the important points to note about bitcoin mining:
- It is a computationally intense process that requires very powerful and application-specific hardwares/softwares to carry out.
- It is Capital intensive as the hardwares and softwares required to mine do not come cheap.
- It can be very rewarding when accomplished successfully.
- It is very risky as final reward is not guaranteed
- Bitcoin mining can now be done using cloud technology, which makes the process a little bit easier.