The most popular cryptocurrency that is mined is Bitcoin. Bitcoin was the very first cryptocurrency to be developed and it was first seen back in 2009.
It is supposed that Bitcoin was created by someone called Satoshi Nakamoto but it is believed that this is a pseudonym and this person or persons have left Bitcoin behind and never surfaced publicly again.
As Bitcoin is the main cryptocurrency out there, most other coins are called alternative coins or altcoins.
There are numerous advantages associated with Bitcoin compared to fiat currencies, such as having the ability to keep it in offline storage to prevent it from being stolen.
It allows for secure transactions which are highly anonymous, as well as being faster than traditional methods of payment. It also usually cuts out a lot of costs due to the elimination of a third-party intermediary.
Over the years, Bitcoin has become a controversial issue as there have been links to criminal activity. This is largely down to the secure and anonymous nature of dealing with Bitcoin, which makes it somewhat easier for criminals to launder their money.
The world of cryptocurrencies also has had its fair share of scams over the year. The most controversial aspect of Bitcoin and other digital currencies is the decentralised nature of them. This means that there is no central authority such as a government or a central bank that has control over Bitcoin.
The taxman cannot freeze Bitcoin accounts and banking middlemen aren’t needed to move these tokens around. Effectively, law enforcement sees Bitcoin and other digital currencies as being the Wild West, especially when it comes to the following of regulations and the likes of tax laws.
How are Bitcoins Created?
Anybody can mine bitcoins if they have a decently powered computer available to them. Bitcoins will be created through the process of cryptocurrency mining, and those individuals and groups who conduct this process are called miners.
As the supply of Bitcoin has been fixed at 21 million, it is self-limiting. At this moment in time, more than 80% of the total supply of bitcoins has been mined.
The process of mining these coins involves having your computer running all day and all night in order to find solutions for proof-of-work problems (mathematical problems that require a lot of intensive computational power to solve).
Every Bitcoin problem will have several solutions that are made up of 64 digits. If you run a bog-standard computer around the clock, it may have the capability of solving a single Bitcoin problem in the matter of a few days.
For those mining bitcoins on a small scale, using only one personal computer to do so, you could reasonably expect to earn between $0.50 and $0.75 daily, without factoring in the electricity costs needed to operate your computer around the clock.
Those who mine on a larger scale with say 36 highly powered computers may be able to generate upwards of $500 daily net of all costs.
Smaller scale miners often struggle to turn a profit as they will spend more on their electricity costs than they earn through mining.
Bitcoin mining is only profitable if there are many computers running and working on these problems at the same time. This is why many small-scale miners join other miners and pool their computing resources together to achieve better results via a mining pool.
How Does the Process of Mining Bitcoins Work?
To mine Bitcoin, you are effectively confirming transactions that are made on the Bitcoin net blockchain. Special hardware and software is used to do so, and the rewards miners receive for their efforts come from a small transaction fee that has been imposed as well as from the block reward.
The miner’s job is to group together the latest transaction data in order to keep the ledger both updated and maintained. These groups of data are called blocks and they are added to the chain.
The miner will then calculate a hash for each block. This is done by having the data run through a specialised algorithm that generates a unique string. This step is repeated over and over again until the valid hash has been identified.
This is a hash which will start with a significant string of zeroes. Whatever miner is able to find a valid hash will be rewarded for their work with some bitcoin and the given block will be verified and be added onto the chain.
It is the hash that helps keep the ledger secure and tamper-free. If even a single letter or number has been changed in any part of the chain, all hashes for each block will be completely different and the compromised ledger will then be rejected by other nodes.
What is a Mining Pool?
If you have been mining cryptocurrency on a small-scale and you are not seeing very good results, you may want to pool your computing resources together with others who are in the same boat.
This is done through a mining pool and it effectively follows the same principle as a syndicate of people who buy lottery tickets together on a regular basis: if one person in this syndicate has the winning lottery ticket, all of the prize money is split between those in the group. This means that there is a higher chance of you winning some sort of money than simply buying individual tickets yourself.
All Bitcoin mining pools have a numerical address that is entered in the mining software’s custom settings. The majority of mining services and apps support some form of mining pool. Depending on your goals, certain mining pools will be better suited to your needs than others.
Most Bitcoin mining apps and services will have their own dedicated mining pool that they support. This is often the easiest option for people starting off in this space as it is the default option that is available.
Usually, these mining pools are ideal for beginners or those who prefer a more hands-off approach as there are usually a lot of miners already involved in this pool and there is constant technical support and upgrades conducted on a regular basis.
How to Choose a Mining Pool?
There are a few different things you should keep in mind if you are looking for a mining pool to get involved with. You will need to take into account the fees that are charged. Usually, this is a percentage of your total earnings that the owner of the pool will take in order for you to be able to be part of this pool.
This can range anywhere from 0% to 10% While it seems like a good idea to join a Bitcoin mining pool that has a 0% fee, this is usually a way a struggling pool attracts members and they may have a small user base that is not very effective. This is why generally it is better to join a higher quality pool and pay a larger fee that will work out well for you in the long term.
Usually, it is best to join a mining pool that is close to your country of residence as the quality of your experience will be enhanced and generally you will see greater earnings as a result.
Another key area you need to consider is that of regulations. There are some issues in the space of cryptocurrencies regarding certain mining pools who may be trying to undermine the evolution of Bitcoin technology.
Some mining pools use a mining method that makes transactions slower or they do not want to change over to a newer version of Bitcoin that may be cheaper and more secure for their users. Usually, you can look through social media and identify which mining pools are to be avoided.
While joining a mining pool can help your profitability, at the end of the day you have to remember that no matter how good a pool may be, it is not a substitute for not having the proper quality hardware.
Your mining pool earnings are calculated based upon what mining capabilities your own computer has, so if you want to make significant sums with Bitcoin mining, you will have to invest in quality hardware.
What Are the Most Popular Methods for Mining Bitcoins?
There are a few different ways in which a Bitcoin miner can go about this process, with each one having its own advantages and disadvantages.
Using an App
Perhaps the most straightforward way for beginners to start mining is by using an app dedicated to the mining of Bitcoin. All you need to do is download the app and it will do everything for you. Bitcoin Miner is a popular option as it is compatible with Windows 10 devices as well as Windows Phones.
When this software has been downloaded, all that the user is required to do is to put the wallet address into the pay-out address in the software setting screen for pay-out address and then hit the start button. It’s as simple and straightforward as that.
Of course, the number of transactions that can be processed depends on the device you are using. Generally, you will make little to no money if you are trying to mine through a mobile device, but a high-spec PC that is well built for advanced video editing and gaming can be set up to be an effective mining machine.
Another popular method for beginner miners to get started is by utilising cloud mining. This effectively involves you creating an account on a 3rd-party website and contributing funds so they can do the mining for you. Of course, the more funds you contribute, the higher your share of the Bitcoin mining profits will be.
Usually, these cloud-based contracts are set in stone for a year or so, with some even being indefinite contracts. When cryptocurrency has been mined, it will be sent straight to your specified wallet address on a weekly or even daily basis. This means that you will be seeing a steady trickle of funds entering your wallet on a regular basis.
In most cases, the amount of bitcoin mined will be more than adequate to cover the associated costs of using the platform.
Personal Mining Rig
Finally, the more advanced option for Bitcoin mining is building your own mining rig. This involves the purchase of an application-specific integrated circuits (ASIC) device.
This is a processor designed for the mining of Bitcoin and it has been created with the idea of having it run around the clock. These are generally expensive devices and usually cost a few thousand dollars.
These types of device consume a significant amount of electricity, so it may take over a year before you start seeing profits from your Bitcoin mining. One of the most used ASIC Bitcoin miners is Bitmain’s Antminer device.
They are constantly coming out with new and improved versions of these devices that make the mining process a lot more efficient, as well as giving the miner a lot of support in the form of a guide.
Alongside this ASIC device, you will need to have advanced mining software downloaded and already for use, as well as potentially becoming part of a Bitcoin mining pool. What the software does is instruct the ASIC device as to what needs to be mined, where to mine it, as well as where to send the mining rewards.