Bitcoin is a cryptocurrency; it is basically money that is not issued by any particular government or central bank. Instead, it relies on the belief and trust of the users in the system itself. With a cryptocurrency, encryption techniques regulate the issuance of new currency (bitcoins) and track the transfer of funds so that someone selling a bitcoin cannot turn around and sell it to someone else. The system is set up in such a way that a miner is rewarded with bitcoins every time a block is discovered. Currently, the bounty for discovering a new block is 12.5 bitcoins. After 210,000 blocks, the bounty gets cut in half (to 6.25). As with any type of mining, the reward of discovering a new block does not come without cost. You have to buy hardware in order to have the computing capacity to discover a new block. You also use a lot of electricity and it takes a lot of time.
What Exactly are Bitcoin Miners Mining?
You are using your computer to solve math problems. While the answer to the problem is trivial and can be validated by any computer easily, the problem is showing proof-of-work. You basically have to demonstrate how you got the answer by showing the random answers that did not work. Because the possibilities are so vast, it takes a lot of time and electricity to crank through proving your work. The complexity of the problem, basically the number of digits, either increases or decreases every 2 weeks (depending on the amount of mining activity going on) so that a new block always takes about 10 minutes to be discovered.
Do You Have to Mine Bitcoin to Use Bitcoin?
Absolutely not. Most bitcoin users just buy and sell bitcoin. They don’t own any specialized hardware and have no involvement in the mining process. The analogy would be having a currency that was based gold. Most people would just use the money while a handful of enterprising individuals would pack their bags, buy gold-mining gear, and start mining like they did in 1849 in Northern California.
What Hardware Do I Need to Buy to Mine Bitcoin?
In 2009, bitcoin mining initially was down on a normal computer CPU like the one on your desk. Miners realized pretty quickly that graphical processing units (GPU) like the one in a graphics card were actually 50 to 100 times more productive. In 2011, another vast improvement was made with field-programmable gate array (FPGA) processors. All of this early hardware is completely worthless, because chips dedicated to nothing but mining started being used and yielded another 100 multiple in productivity while consuming far less power. They are called Application-specific integrated circuits (ASIC). Experts are forecasting only minor increases in productivity and no more generational leaps in productivity in the medium-term future. ASICs are readily available and found at Amazon.
Do I Have to Buy the Hardware and Do This Myself?
There are a number of services that offer the ability to contract with a bitcoin miner but not actually mine yourself. This allows you to avoid purchasing the hardware, running and servicing the equipment, dealing with the noise and heat they throw off, etc. Mining requires a lot of electricity, so it is possible that the industrial rates that a bitcoin mining service receives might be lower than the costs that a home-based miner will pay. The disadvantages include the fact that they cost money and you will owe the money even if the mining is not profitable. Also, bitcoin mining is an area that scammers have latched onto so you need to really scrutinize who you are contracting with. One bitcoin expert has gone so far as to say that he believes 99% of the bitcoin cloud mining companies are scams. A few of the (unvetted) players out there include: Genesis Mining, Hashflare, and Hashnest. Do your homework!