Bitcoin itself has become seriously popular even among the community of tech & finance laymen over the last few years. It is already eligible for payment use, trading and mining.
Compared to Bitcoin trading, mining can pose a better long-term investment or an additional form of acquiring Bitcoin alongside trading.
What is Bitcoin mining? How does it work? Is it safe? What equipment do you need?
You’ve maybe heard certain rumors surrounding the topic of Bitcoin mining recently.
Read this article and find out if Bitcoin mining is really worth it in 2022 and what you need to get started.
What is Bitcoin mining?
Explained briefly, Bitcoin mining represents the process of creating new bitcoins by solving math problems, which are known to be extremely complicated. These math problems verify transactions in the cryptocurrency. Solving these puzzles requires powerful computing power and dedicated equipment.
Miners package the transactions into blocks and add them to the network (called Blockchain technology).
Upon successful mining of a Bitcoin, the miner acquires a predetermined amount of Bitcoin sent to their Crypto Wallet, therefore, the money is possible to use almost instantly after being mined.
History of Bitcoin mining
At first, mining was usually done on personal PCs using a CPU, later standard graphics cards. Receiving the reward for mining back then was quite easy, because miners already had the equipment. Therefore, no additional investment was needed to start mining.
The competition was not big due to not many people knowing of Bitcoin and Crypto mining.
An innovation in the system became noticeable with the ASICs (explained below in the article), which offered significantly higher capabilities than ordinary computers.
What equipment does BTC mining require?
The hardware required for mining consists of application-specific integrated circuits, shortly ASICs. Prices of these machines can reach up to $10,000. They consume huge amounts of electricity, which has made them the targets of criticism in connection with the environment.
Non-physical equipment is also required to mine Bitcoin, including a Crypto Wallet and a Mining software. Your Crypto Wallet will be used to store your successfully mined funds.
Should I mine Bitcoin?
With so many cryptocurrencies currently existing, maybe you would like to know if Bitcoin is the right one to mine.
Here are some advantages of Bitcoin itself:
- Assets can be transferred faster on the Bitcoin network compared to traditional currencies.
- Being decentralized and having no intermediaries, the system has lower transaction fees.
- It is cryptographically secure – the identities of the trading parties remain anonymous, making the transactions impossible to hack.
Mining advantages:
- You Receive BTC for mining instantly to your Crypto Wallet.
- By mining, you contribute to the functionality of an existing blockchain by creating new Bitcoins and validating transactions.
- Free heat: While this might sound ridiculous at first, multiple tech entrepreneurs use miners as a source of heat for their own estates making miners have a dual function of earning money and bringing warmth.
Sounds all safe and modern right?
Where is the catch?
While the advantages may pose strong-handed evidence for why bitcoin mining is worth it, the existing cons may show otherwise.
1. Bitcoin halving
Bitcoin halving is a process during which the network cuts the rewards of miners by 50%. So far, three cases of these cuts have appeared – 2012, 2016, and 2020. The 2012 case reduced the rewards from 50 BTC per block to 25 BTC. The second cut from 25 BTC to 12.5 BTC. The last one reached a cut from 12.5 BTC to 6.25.
Each halving takes place after every 210,000 blocks, which usually means every four years, and the next halving will take place in 2024, cutting down the rewards to 3.125 BTC.
2. Electricity consumption
With such powerful hardware, electricity becomes fully used up. The impact of this depends mainly on the location, as electricity costs differ based on the location of mining machines.
Alternative energy sources are on the rise nowadays, meaning even some mining machines can be fueled by alternative energy such as hydroelectric, solar, and wind sources, or even fossil fuels. Calculate the expenses and possible profits to find out if mining can become profitable for you.
The 2019 report from the Congressional Research Service showed that the amount of electricity used by one mining machine can reach the same amount of used electricity as 500,000 PlayStation 3 devices.
3. Difficulty
The mining difficulty itself can increase depending on the number of active miners. The mining network is designed to produce a limited number of BTC per second, meaning that more active miners make the mining process more difficult.
The complexity of Bitcoin mining has also increased, requiring more computing power. BTC mining consumes about 94 TWh of electricity annually. According to the Cambridge Bitcoin Electricity Consumption Index, this is more than is used by Kazakhstan or the Philippines.
4. Taxes
5. Prices of mining equipment
Prices of the mining equipment have become increasingly high throughout the course of the last few years. Components including graphics cards, and chips have become too expensive for someone who wants to get into mining as a beginner, making their start quite difficult.
6. Mining companies
If something produces money on an individual scale, it also probably does on a larger scale. Companies have established with a goal to mine as much Bitcoin during the shortest time possible.
These companies pose a huge threat to new and already existing miners. Such companies usually own a massive amount of miners working 24/7 to ensure profit.
Locating the machines in places with cheap electricity and good cooling conditions makes their mining as profitable as it gets.
Bitcoin mining pools
A Bitcoin mining pool is a group of miners that work together as one team to increase their odds of mining a block of BTC and share earnings between each other according to their individual contribution in computing power. Therefore, it can pose a better mining opportunity. An individual doesn’t have as much of a chance to mine BTC compared to a mining pool.
Each mining pool has a pool operator that oversees the numbers. He must record how much work was executed by each member of the mining pool, manage hashes, assign shares, and distribute rewards to every member.
As a result of pool mining, a mining pool fee is distributed to each member based on their contribution. These pools may vary in types of reward distribution. Some pools can be proportional, some pay-per-share or completely decentralized peer-to-peer (P2P) pool types.
Conclusion
Bitcoin mining might be trendy and talked about everywhere nowadays. However, the truth behind this phenomenon shows that it is insanely difficult and expensive to reach profit by mining.
With mining becoming a billion-dollar industry during recent years, changes made due to the presence of large mining companies usually exclude individual miners. In spite of this, some individuals still manage to make profit by correctly calculating their expenses connected to electricity, hardware, etc.
Should you only stick to trading?
It definitely is easier to trade than mine. However, the growth of BTC is not guaranteed. Aside from receiving a reward for it, mining can contribute to keeping the network and the blockchain safe and validate the transactions. Bitcoin simply would not work without mining as it’s a critical piece of its scheme.
We hope this article gave you a brief overview of what you need to start mining Bitcoin. If that’s not the case, go on, look for other investment opportunities. With options being so wide in today’s world, it is possible to find an investment which will return just the way you intend it to.
Do not limit yourself to mainstream investment opportunities, use social networks and tech & finance websites for your own good. The opportunity is out there, you just need to find it!