It is easy to think of it as just a form of digging in the Internet to find bitcoin’s, but in reality, it is a little more complicated than that and has wider implications than simply accruing wealth. Here’s what you need to know.
The process of mining bitcoin is rooted in mathematics. Miners use computing power to identify a sequence of data called a “block”. In order to understand fully what happens, it is necessary to get a little bit technical. When miners identify the block, it is relatively useless in its current form. However, when the bitcoin hash algorithm is applied to a particular block, and it matches, the miner receives a particular number of bitcoin. Think of the hash algorithm as a sort of converter. When the block (which can be arbitrary – meaning it can be of any length and composition) is inserted into the hash algorithm the algorithm converts it into a standard length output called, in the world of cryptography, a digest. If the hash algorithm you calculate produces the right digests, you receive bitcoin.
This, however, is not all. When mining bitcoin, you are also validating bitcoin transactions. When the block of transactions is created through the mining process, miners apply the hash algorithm (as mentioned) to the block. The house that this creates then gets stored alongside the block at the end of the book chain. Without getting too technical, the key part of this process is that the hash of any block is created using the hash of the block before it in the block chain. Through this process, it validates the block that came before it in the chain, and in turn, the transaction. This is a key part of the mining process and one that allows the bitcoin ecosystem to effectively regulate itself and avoid the need for external regulators such as central banks.
So how can you mine bitcoin yourself? Back in 2009-2010, an individual could mine bitcoin relatively simply on their own. The computer power required to generate a hash was far less than it is now, and so the cost of the electricity necessary to produce one bitcoin made it a profitable endeavour. This may will be the case in the future, if the price of bitcoin rises further. However, at present, it is much more efficient to join the mining pool. Mining pools combine the computing power of a large network of computers and then split the rewards.
If you are determined to mine bitcoin yourself, you will be able to find mining rigs online, which are hardware that massively increase the computers power. These can be costly, but as mentioned if the price of bitcoin increases further it may prove profitable in the long run. In April last year, for example, bitcoin was worth a little over $30. It cost about $45 in electricity to mine one bitcoin. At that time it was obviously an profitable to spend money on electricity to mine. Looking at it now however, it would have been extremely profitable.
If you want to join a mining pool simply enter the term “bitcoin mining pool” is your favorite search engine and pick the one that appeals to you the most.
So that’s how to mine bitcoin, what if you want to just buy it? Find out how here…