These days, almost every person is aware of Bitcoin and other cryptocurrencies. The digital coins are catching everyone’s attention but still, most people fail to understand how it operates. When we hear or read something about Bitcoin, several questions pop up in our mind. How Bitcoin is produced? Why it’s so valuable? How can I get Bitcoin? There are endless such questions that baffle every layman.
As you might already know, Bitcoin is a digital currency which is decentralized, meaning no central government regulates it. So, how do we produce or regulate it? The answer to this question is “Mining”. It is the mining process through which Bitcoin is created. Now, you may want to know what exactly mining is.
What is Bitcoin Mining?
The traditional money is printed and regulated by financial institutions. But when it comes to digital money (cryptocurrencies) these are neither created nor controlled by any central authority. Unlike other forms of money, Bitcoin is created using powerful computers which verify transactions on the network in exchange for a fee in the form of more Bitcoin.
As you might already know, the underlying technology behind Bitcoin is known as Blockchain. All Bitcoin transactions are recorded in Blockchain which is essentially a public ledger that records every transaction from the initial point of origination to the final point.
The process of verifying the transaction on the blockchain is known as Mining. When a miner validates the previous blockchain transactions, a Bitcoin is granted as a reward. Mining requires computers that use computational power to solve algorithmic mathematical problems. The process of identifying and adding verified transactions (block) to the blockchain is performed by miners who earn a reward for their efforts.
Who are Bitcoin miners?
When Bitcoin was introduced, mining activities were confined to only cryptography enthusiasts. However, with the escalating demand and popularity of Bitcoin, many other individuals, as well as business are entering the space. Today, anyone with mining knowledge and hardware can mine Bitcoin. In order to mine, the miners require the right hardware and software that are specifically designed for the purpose.
How to Start Mining Bitcoin?
Basically, for mining you need three things:
- Mining hardware
- Mining software
- Bitcoin wallet
Bitcoin Mining Hardware
To start bitcoin mining, first, you need appropriate hardware. Unlike the initial days of Bitcoin, today with the increased mining difficulty, mining requires hardware with more hashing power and greater output. It is possible to mine bitcoin using your GPU, but for serious bitcoin mining, you’ll need ASIC (Application Specific Integrated Chip) circuits. The ASIC chips offer higher performance and established names like AntMiner dominate the industry today. An ASIC mining rig may cost you more initially but it increases the possibility of securing a block. Before investing in the hardware, you should consider its hashing power which will determine how successfully you can mine a block. Once your mining rig is set up, you can opt for solo mining, join a pool or go for hosting services.
Install Mining Software
After setting up your mining rig, it’s time to download appropriate mining software. There are popular programs like CGminer and BFGminer, as well as GUI based mining programs for Windows or a Linux operating system. For Mac, there are programs such as MacMiner.
Create Bitcoin Wallet
For storing your Bitcoins, you will also need a wallet. The digital wallets that store and protect your digital coins are of two types: local wallets and online ones. This means you can easily create a Bitcoin wallet online or store your bitcoins in a physical wallet. Make sure you never share your private keys and encrypt it to protect your coins from unauthorized access.
Join a Mining Pool
As compared to solo mining, joining a pool is usually the better option. This is because it increases your chances of verifying the block. Mining pools are the groups of miners who get together to combine their powers in order to increase the chances of earning Bitcoin reward which is 12.5 BTC per block. It gives you the ability to share the mining resources and split rewards according to how much computational power you contributed. However, before joining any pool, make sure to research about the withdrawal fees, commission, hashrate, reputation, etc. There are several mining pools and the most popular ones are Antpool, BTC.com, BCMonster.com, Slush Pool, etc.
Another option is cloud mining which allows you to rent time or become a mining pool member. If you don’t have enough capital to set up a mining rig, cloud mining will enable you to use the equipment. You will be charged for using these services but will have little control over how the equipment is used or how effectively it runs. There are some cloud mining services such as Genesis Mining, Hashflare Cloud Mining, and Minergate.
Both solo mining and could mining have some limitations. To overcome these drawbacks, colocation is the best way to maximize your mining returns. In colocation, you own your own mining rigs and they are placed in a secure facility and monitored 24/7. These third-party data centers ensure uptime and offer redundant power supply, network, and cooling. This means you’re protected against theft, high heat or soaring energy bills.