Now you very well know with what is blockchain technology and bitcoin.
But do you know that bitcoin mining is the most important part of the bitcoin blockchain? But what is Bitcoin mining? Is it the same as mining gold? Let’s find it out.
What is Bitcoin Mining?
Fiat currency like Rupees, Dollars, etc. is created by printing by a central authority. But bitcoin is created by the process called bitcoin mining. Now let’s have a look at the definition of bitcoin mining.
It is the process of verifying the transations and solving a mathematical problem in order to create a bitcoin block, with the help of powerful machines.
Credits: Cem Goksel Ozargun
Is it the same as mining Gold?
For mining, gold miners dig the ground, but in the case of bitcoin, miners solve a mathematical problem to solve to mine it. So it’s not the same as Gold mining.
But bitcoin and gold do have some similarities.
- Bitcoin and Gold are present in a limited amount.
- As more and more mining is done it gets even more difficult to mine bitcoins and gold.
How do Bitcoin Mining works?
We discussed in our previous blog that how blockchain works but how does bitcoin mining actually work. Is it the same or different? Let’s have a look.
- The transaction takes place between two peoples.
- Miners try to solve mathematical problems with the help of machines.
- One of the miners solves the problem.
- A new block is created or let’s say it that bitcoin mined.
Why Do Miners waste money on Bitcoin Mining?
In order to mine bitcoins, miners need a special machine that solves a mathematical problem and it also needs electricity to run the machine. But why do miners waste money? Are they dumb?
No here are the reasons why they actually mine bitcoins.
- They get a reward for mining bitcoin in the form of cryptocurrency.
- They also get whole transaction fees of the block.
Methods of Bitcoin Mining
There are two methods to mine bitcoins and earn money.
Traditional Bitcoin Mining
In this type of mining, you need to buy a mining device in order to mine bitcoins. According to my opinion, it is not ideal for anyone to buy this device as they are costly.
Advantages of traditional Bitcoin Mining
- If you mine a bitcoin you get whole reward and transaction fees.
Disadvantages of traditional Bitcoin Mining
- The devices are very costly.
- Shipping charges are applied while ordering.
- You need to pay very high electric bills as it uses more electricity.
- You also need to deal with high temperatures as the devices release too much heat during the process.
- New devices are launched that have more power to mine bitcoins, so new miners may buy that which serves a disadvantage to old miners.
Bitcoin Cloud Mining
It a good alternative to traditional bitcoin mining. It is comparatively less costly than traditional mining
- You need to join a bitcoin cloud mining pool.
- Afterward, you need to invest money.
- Now when a block is created the reward is shared to all the peoples who have invested.
Advantages of Bitcoin Cloud Mining
- Comparatively cheaper than traditional mining.
- No electricity bills.
- No heating effect as you don’t own a device.
Disadvantages of Bitcoin Cloud Mining
- Rewards are distributed.
- Most mining pools are a scam.
You can join and invest in Genesis Mining. It is the oldest and legit cloud mining pool.
Is bitcoin mining Profitable?
Let’s take an example to understand that is bitcoin mining profitable or not.
Assume I brought Platinum Plan and invested $2002 for 22TH/s of power for 24 months of bitcoin mining.
Using today’s difficulty and exchange rate I will plug in 22 TH/s as my hash rate
After inserting the values I got the following results.
So after investing $2002, I got a return of $2726 in 2 years. So I have a profit of $724 in 2 years, which according to me is very less as the risk is high in investing in mining.
As I have assumed that the price is constant I am unlikely to get the desired result and more likely I may suffer from a loss.
I would advise you to invest directly in Bitcoin rather than Bitcoin mining.
Is Bitcoin Mining Legal in India?
Bitcoin is neither legal nor Illegal at this Point in time. RBI is unsure about it and said that until and unless the Supreme Court comes to a final decision no one can mine, trade, store or exchange bitcoins.
But as there are many peers to peer platforms peoples do trade and exchange bitcoins.
You must not do mining in India as the costs are too much higher.
- Bitcoin mining is the process of competing with other miners to solve a mathematical problem.
- Miners are rewarded in the form of cryptocurrency and transaction fees.
- If you want to earn profit from traditional bitcoin mining, electric bills must be less and you must have a cool environment and enough money to buy the mining device.
- If you want to earn profit from cloud mining you need to invest money in a genuine mining pool.
- It is profitable to invest in Bitcoin rather than Bitcoin mining.