To start, the term "Bitcoin" can be used to refer to 3 things:
These 3 are fundamentally different and it's important to distinguish these differences to understand mining.
The best way to think of each of them is the following:
Thousands of people running computers make up the Bitcoin network. Each of these computers store the entire history of transactions that have taken place on the network in a special database. This is called the Bitcoin blockchain, and the 2 names for these computers are Bitcoin miners or Bitcoin nodes. They are rewarded for their participation in securing the Bitcoin network and validating Bitcoin transactions. Rewards are in Bitcoin (BTC).The blockchain is a chain of blocks. Each block contains the latest set of transactions.
New blocks are created by Bitcoin miners, but only 1 miner can create each new block. To ensure that only 1 miner creates a block, all miners must compete to solve a difficult mathematical problem.
The difficulty of this problem is dynamically adjusted so that a block is created roughly (but reliably) about every 10 minutes. The miner that achieves a solution first gets to validate all transactions and create the new block. This is called proof-of-work (PoW).
In return for their efforts, they are rewarded with brand new Bitcoin (BTC), plus the transaction fees from all transactions within the block. The reward is currently 6.25 Bitcoin per block.
Once you have a Bitcoin mining rig in place, your next step is to download the necessary software that will connect you to the Bitcoin blockchain. The software distributes work to miners and attempts to find blocks for the blockchain. There are several free software programs that can be used to mine Bitcoin, such as NiceHash Miner.
It's difficult for individual miners to compete with large mining farms backed by mining companies. Luckily, there is a solution – Bitcoin mining pools. Individual miners can combine their computing power with a group to collectively compete. Fees must be paid to the operator of the pool and rewards are slightly lower, but using a mining pool will ensure rewards are more consistent.
Once you choose a pool, you are now ready to start mining Bitcoin. Connect your mining hardware to a power outlet, complete the connection to the Bitcoin blockchain with your chosen software, fill in your Bitcoin address for your rewards to be deposited to and you're good to go.
There are a few factors that influence how much you can earn as a miner, including:
With increasing competition, the price of profitable Bitcoin mining equipment has increased considerably. Large mining farms are driving up demand and dominating the Bitcoin mining space, mining rigs are having to become more powerful, and this in turn increases the price. While some ASIC miners can start from $500, a professionally built mining rig can cost as much as $15,000. It is likely to take more than a year to recoup your initial investment.
Once a Bitcoin mining rig is in place, it then has to be powered. Ideally, the cost of electricity is low but if a Bitcoin mining rig is running every single day, costs can soon start to pile up. The cost of electricity will also vary from region to region within your respective country.
To stand a chance of a return, every miner needs to mine Bitcoin through a Bitcoin mining pool. However, there is a cost to join a Bitcoin mining pool. The operator of each pool will charge a percentage for the use of the network. These pool fees typically range from 0.1–2.5% and are removed from the mined Bitcoin.
The final cost to consider is the fee required when selling any Bitcoin. If a user's intention is to sell all Bitcoin that is mined, a fee will need to be paid to the cryptocurrency exchange or broker used to facilitate the transaction. These fees will vary between exchanges, and can sometimes be minimal, but should still be factored into the overall cost.
Cloud mining comes with its risks due to the propensity for cloud mining operations to be scams. There have been cloud mining operations set up that accept Bitcoin as payment, and pay out investors in Bitcoin. However, some of these operations are Ponzi schemes, paying out early investors with the deposits of present investors.
Be sceptical about the authenticity of the cloud mining operation if they are offering returns that seem unreasonable. It is useful to ask the following questions about the operation in the event that they are promising high returns: If they're getting such high returns, why do they need my money? Why don't they just mine the Bitcoin and keep it, rather than paying me a return for my investment?
That being said, there are safe Bitcoin cloud mining investment opportunities. Keep an eye on the returns that they are promising, as this is the best indication as to whether or not the opportunity is a scam.
See if you can correctly guess the price of Bitcoin (BTC) each week and check back on Monday to see the results.
Bitcoin tokens are set to become one of the biggest cryptocurrency trends of 2023 – here's how to get started investing in them.
A panel of industry specialists give us their predictions on the price of Bitcoin to 2030.
Buying Bitcoin as a gift for someone has never been easier. Here’s how to do it safely and stress-free.
Want to buy a large amount of bitcoin? This guide takes a look at the easiest and cheapest ways to spend big on cryptocurrency.
Need ways to sell your Bitcoin? Here are different methods you can 'cash out' your Bitcoin (BTC) holdings.
Want to buy Bitcoin or any other cryptocurrency with PayPal but don’t know how? Find all the information you need in this handy guide.
A round-up of the most common crypto scams and how to detect and avoid them.