You must have always wondered about how the cryptocurrencies are actually generated and how this online entity is regulated? Our conventional fiat money is printed by the central banks, but do cryptocurrencies have a central government?
There are tons of mathematical calculations involved in the intrinsic web of the Bitcoin network, a simple transaction on market exchange, prediction market or on blockchain sports betting site. That is why you might find it a little complex to understand. To make it as easy as possible, one can call Bitcoin, an online-generated currency. Just like Central Banks print currencies, Bitcoin miners generate Bitcoin (Cryptocurrency). The Bitcoins can later be obtained in exchange for goods and services, purchasing them and mining new ones.
The process of generating new Bitcoins is called Mining. Basically, Bitcoin maintains a public ledger to accommodate all transactions and mining involves adding new transactions to this public ledger. The mining process is expensive and time-consuming. Every block generated has multiple fatal attempts and energy of a miner. For every successful process, the miner gets to add into the blockchain and receives a reward. The rewards are in the form of bitcoins which can be sold or exchanged later.
How Bitcoin Mining Works: A Technical Explanation
For a better understanding of the mining process, it is important to know the technical insights. It runs on SHA256 double round hashing process. This validates the Bitcoin Transactions and provides the necessary security. The speed of mining is measured in terms of hashes per second. Only those miners manage to fetch Bitcoins who have superior computational prowess. Better your computing power is, greater is your share of the reward.
Steps to Bitcoin Mining:
1. Getting the Mining Hardware
Getting a Mining Hardware is a prerequisite. Earlier mining was possible with an efficiently working CPU or a Graphics Card, but now the case is not the same. There are Custom Bitcoin ASIC chips which work much faster than the old technologies. Bitcoin Mining consumes a lot of electricity. The better technology automatically reduces your electricity bills; after all ‘Money Saved is Money Earned’! That’s why make sure nothing lacks in your first step towards Bitcoin Mining.
2. Download the Bitcoin Mining Software
After you have settled the hardware hustle, now it’s time for the software. You need software, as good as your hardware. There are a lot of software available online but not all of them work well, therefore, you have to choose your software wisely. Two popular Bitcoin mining software these days are CGminer and BFGminer.
3. Jump into the Bitcoin Mining Pool
Bitcoin Mining Pool is a bunch of miners who work in teams and solve blocks together. They share work as well as rewards. These pools are beneficial as the work gets divided, the pressure is less and hence, the possibilities of making mistakes get reduced. There are a lot of mining pools available online; you may join whichever suits you.
4. Setting up a Bitcoin Wallet
Now it’s time to make the setting for your payments. In order to get the payments, you are required to use the bitcoin wallet. There are some wallets that serve multiple purposes along with collecting the Bitcoin money. The most important thing about setting up the Bitcoin wallet is to collect your funds and abstain yourself from any kind of threat. You can secure them by enabling 2-factor authentication or keep it in systems not having internet access.
As there are many ways to use bitcoin, different means to save them are available as well. There is a variety of wallets to choose from and here they are:
- Online bitcoin wallets: The online wallets are the convenient wallets accessible from any device connected to the internet but at the same time vulnerable to online threats.
- Bitcoin hardware wallets: These are the physical devices designed to keep bitcoins.
- Software wallets: The software wallets can be downloaded in your device and you can overview your funds anytime. They can be accessed from your mobile or tablets.
- Paper wallets: Paper wallets are printed papers that contain a cryptocurrency address and private key that can be accessed by a QR code. The main advantage is that the bitcoins stay in the cold storage and remain safe.
5. Keep updated with the Bitcoin News
The work is not over yet. After making all the necessary arrangements, you are required to keep a track of the trends. It is important to keep updated with the Bitcoin Industry.
The Trials and Tribulations in Bitcoin Mining
We all know that Bitcoin Mining is no easy job. It is a known fact that it involves ‘Proof-Of-Work’, a framework which demands the miners to solve complex mathematical problems to construct a block in the blockchain. In Bitcoin, the Hash works as proof of work. The one who does it fastest gets the reward. A lot of people solve a similar block at the same time which makes the probability to earn the rewards gets lesser. This makes it a very random process with extremely low chances of getting through.
Next comes the Hash Rate. A high Hash Rate increases the chances of the miner to win a reward but it is also a Random Input. The total output is a combined effort of all the random inputs put together in a quick way.
NOTE: Apart from all these mandatory elements, the side expenses should also be paid attention. There is a ‘Transaction fee’ that miners are supposed to pay for executing the transactions. This guarantees the timely transfer of funds. There are electricity bills too. With the increased use of the hardware, the energy consumption hikes. That is why it is better to invest in better quality, low-power consuming hardware. Consider all the vital aspects before placing your funds, time and labor.