How Bitcoin & Cryptocurrency Mining Works
We know where paper money comes from. A central government decides when to print and distribute it. It’s kept in banks, wallets and it’s very familiar. But what about cryptocurrency? Where does it come from and how do we get it? In brief, like silver or gold, it’s mined.
Satoshi Nakamoto and the Seven Dwarves
Essentially mining Bitcoin or any cryptocurrency can be likened to mining a natural resource like gold. You go into a mine with a pickaxe and you take it out of the ground. Satoshi Nakamoto created the pickaxe, this is the software you install on a computer to solve complex mathematical puzzles that are part of the block. The block is the mine. These algorithms are iterated by the computer and the computer you downloaded the software into sets about solving the complex mathematical puzzle. When one of the puzzles is solved, the block is closed, added to the chain and the reward is a piece of Bitcoin. The Bitcoin is removed from the mine and put into your digital wallet.
3 Bitcoin Mining Methods
The first method is the easiest and it’s ideal for the beginner. You download an app that does everything for you. Bitcoin Miner is a Windows 10 app, free to download, and it can be used on Windows 10 PCs, tablets and phones. Once the app is downloaded the user enters their Bitcoin wallet address in the Payout Address setting screen, presses the START button and … that’s it.
Method number two is also good for beginners: Mining on the Cloud. You can get into crypto by paying someone else to do it for you. With cloud mining you sign up for an account on a third-party’s website, like Hashflare or Genesis Mining, and pay them a fee to mine Bitcoin or other cryptocurrencies for you. Typically with cloud mining the more you pay, the more crypto your account will be able to mine. Cloud mining contracts usually last a minimum of a year but some contracts can go on indefinitely. The mined crypto is sent to your designated wallet address on a regular basis.
The third method is the advanced method, building a Bitcoin/Cryptocurrency mining rig. This is for serious investors with some capital to use. You’ll need to buy an Application-Specific Integrated Circuits (ASIC) hardware device. These are often called mining rigs, made solely for the purpose of mining Bitcoin and other cryptocurrency. They are intended to run all day, every day. When using an ASIC mining device you’ll need to download advanced mining software and join an mining pool. The software will tell the ASIC what to mine, where to mine and who to send the mined coin to. A mining pool is a group of other miners that chooses to mine together and share the rewards.
You Should Know
ASIC miners are very expensive, selling for several thousand dollars, and running one consumes a lot of electricity. It can often take over a year of continuous mining to begin seeing a profit.
Why and Why Not?
Why? Because getting into cryptomining, even on a beginner level, is a way to be a part of the wave, make a little extra money and support for your prefered coin. Also, miners are needed to process all transactions on a coin’s blockchain. So, the more miners there are, the faster and more stable the coin will be.
Why not? The main downside to cryptomining is that it consumes a lot of electricity, which itself costs a lot of money. If you’re looking to get rich, you need a significant amount of money at the outset before you start seeing significant profits.
Best Places to Mine
In a study conducted by the electrical supply company Crescent Electric, they determined, factoring the cost of electricity, the top five cheapest and most expensive states to mine for Bitcoin/cryptocurrency. Here’s the cost of mining one Bitcoin in each of these states.
Louisiana $3,224 Hawaii $9,483
Idaho $3,289 Alaska $7,059
Washington $3,309 Connecticut $ 6,951
Tennessee $3,443 Massachusetts $ 6,674
Arkansas $3, 505 New Hampshire $6,425
According to a data released by Elite Fixtures, here are the cheapest and most expensive places around the globe to mine for bitcoin and cryptocurrency. Factoring in the cost of electricity, this is the cost of mining one Bitcoin.
Belarus $2,172 South Korea $26,170
Bangladesh $2,379 Niue $17,566
Kazakhstan $2,835 Bahrain $16,773
Ethiopia $2,855 Solomon Islands $16,209
Suriname $2,956 Cook Islands $15,861
Painstaking, Expensive But Worth The Cost?
Like any investment you have to do the research. There were only 21 million Bitcoins created, 17 million have been mined. As more are mined the higher the difficulty in finding new coins. More difficulty means more time and more electricity. Once the 21 million are mined, no more will be created, but the scarcity that ensues will drive up the value of those coins. Add to that the volatility of the crypto market and you have to think hard before you jump into the crypto world. Like all investing ventures, there are no guarantees.