Bitcoin and Cryptocurrencies: FAQs for Beginners

Bitcoin Mining

What is Bitcoin Mining?

It is a process in which someone uses a computing system (usually with high processing power) to perform the cryptographic process with mathematical calculations that verifies Bitcoin transactions. computing power expenditure to process transactions, secure the network and keep everyone in the system in sync with each other. It can be thought of as Bitcoin’s data center with the exception that it is designed to be fully decentralized with miners operating in all countries and no one person exercising control over the network. This method is referred to as mining analogously to gold mining because it is also a temporary mechanism used to issue new bitcoins. However, unlike gold mining, Bitcoin mining provides a reward in exchange for the useful services required to operate a secure payment network. Mining will be required even after the last bitcoin is issued.

How are bitcoins created?

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As we mentioned there will be 21,000,000 bitcoins in the market and currently around 16,500,00 have been mined. But how is this done?

There are computers that are connected to the Internet and perform the Mining process. They perform complex cryptographic calculations consuming electricity and confirm transactions made on the Blockchain. Miners waste a lot of electricity for these calculations, and every time they successfully verify transactions, they are paid in bitcoins for their services.

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New bitcoins produced by Miners are generated at a constant rate. This means that Miners compete with each other to verify transactions faster than others, in order to claim as much of the Bitcoin payout that Blockchain gives.

Blockchain is designed so that the more Miners involved in the process, the higher the difficulty of mining (as with gold). Note that the criterion for how many Bitcoins you can extract is purely the processing power someone gives and luck.

Bitcoins are produced at a gradually decreasing and predictable rate. Each year this rate decreases by 50% until it stops completely when we reach 21,000,000.

As soon as no more bitcoins can be mined, then Miners will only be paid from transaction fees and of course the value of Bitcoin will have greatly increased… at least so we hope.

How can one become a Miner and get Bitcoins from it? Is it profitable?

Yes, anyone can start Mining with their computer or mobile phone… but it is not certain that they want to, as at the moment the process is highly competitive and there are entrepreneurs who have invested several millions to buy specialized equipment to get the more bitcoins produced. One would have to spend quite a lot of money (over €1000 to get specialized mining machines).

When Bitcoin started an average computer could generate one bitcoin every 10 minutes. The more people entered the space, the more difficult the process became. Right now a machine costing €1000 can mine 0.001 bitcoins every 2 weeks (Bitmain Antminer S7).