Bitcoin Mining For Individuals
Traditional “fiat currency” is created with the use of banking institutions, whereas Bitcoins are “mined”.
To “mine” Bitcoins, is the process in which you spend computational power to process transactions over a secure network, and keep everyone in the mining system fully up to date and synchronized. Bitcoin mining is completely legal and is done by running (getting technical here) a SHA256 double round hash verification process in order to validate the transactions and grant a sign of approval to the public ledger.
Any Tom, Dick or Harry can become a Bitcoin miner and get their share of cryptocurrency before the finite amount runs out. In the very early days if mining, all that was required was your computer’s CPU or high speed video processor card. Check out this poor guy.
Whereas today, that’s no longer the case unfortunately. Anyone can become a Bitcoin miner if they have the correct hardware and software, because it requires specialized hardware that is 100x better at performing the mathematical equations. That’s all that your computer is doing. It’s solving maths equations in exchange for Bitcoins. The more equations your computer solves, the more Bitcoins you are rewarded with.
It’s a good incentive for more and more people to join in, because they must approve transactions that take place on the decentralized blockchain network. So more miners, means a more secure network. Learn about where you can store bitcoin.
This new specialised software is required to carry out these mathematical equations because they offer much more processing power than a standard computer. When mining cryptocurrency, you want your mining rig to be as profitable as possible, this requires speed and time. Remember when I said about having more miners is beneficial for everyone, because they must approve transactions?
Well, for new transactions to be approved, they need to be included in the blockchain, accompanied with the mathematical proof of completion, otherwise no Bitcoin for you. You’re probably wondering if the proof can be created? Well unfortunately, no. The only way the proof to be approved is for your mining rig to try and trying billions of calculations per second in order to generate the right outcome.
Has mining become tougher?
In the early days as mentioned previously, all that was needed was your computer with a CPU or high speed video processor card. But now it requires specialised equipment. Learn more about standard mining techniques here.
When the mining process becomes too competitive and less profitable, a lot of miners will decide that it isn’t for them anymore, because they are using more power than they are generating Bitcoin. An efficient mining rig is one that maintains the balance us energy used, and Bitcoin mined, and isn’t using any extra energy in order to produce the cryptocurrency.
The mining process is a bit like a lottery, in a way that makes it extremely difficult for people to add new blocks of transactions onto the blockchain consecutively. This security measure not only prevents people from replacing parts of the blockchain (which can be used to defraud other miners), but it protects the neutrality of the network by stopping anyone from gaining the power to block transactions.
As the number of Bitcoins available is decreasing (because there is only a finite amount), the energy required to successfully mine Bitcoin will become harder. There are however, other options than mining Bitcoins. If you’re a beginner then check our this beginners guide to crypto.
Other popular cryptocurrencies such as Ethereum, Ripple, Dash and Litecoin are all perfectly capable of being mined with the same specialised equipment.
If you’re looking to “mine” Bitcoins (typically for profit) in 2017, the consensus is that it’s no longer viable unless you have MASSIVE server farms working around the clock to calculate a huge number of hashes for the system.
Nonetheless, it is an interesting topic and as such we will cover some of the fundamentals required to get a Bitcoin mining operation online and running. This tutorial will explain how the “crypto” universe works with the blockchain technology, and how this translates into actually being able to make a profit…
The core of BitCoin is “blockchain” – a new type of technology which provides the ability to decentralize data across a “network” of blockchain-enabled systems.
Very similar to “torrents” of old, it gives users the ability to “download” files & data from a large number of independent systems, rather than having to rely on a single provider to get access to the relative information (such as you would if using the likes of a bank or online service such as Facebook).
The point about “blockchain” is that since BitCoin is built on top of it, it’s vital to know how it works. Its underpin is to treat data as chains of information, much rather than specific stand-alone files (as is the case with hard drives and databases).
The way that standard file systems work is to give you access to ONE set of data. This data is not versioned and is likely the result of ONE person’s work etc. Whilst this works well, the problem is that it’s not extensible, or applicable, to the modern web. With data having a HUGE number of potential contributors, as well as being updated regularly, it’s important to be able to *manage* it from the perspective of the different versions that it may have on the system.
“Blockchain” attempts to solve this by taking data and turning into “blocks” – replacing standalone “files” with a set of dynamically versioned data.
It’s best to think about it in through the context of email… back in the 90’s ALL email was stored on a user’s system as separate files. These files were independent of any particular email client, and typically held ALL the information for the different messages etc on the hard drive. As your inbox grew, so did the files until one day they likely became huge.
Whilst this process will not change with blockchain (IE data is still stored as files) , the difference lies in how those files are used by the system. You see, we’re now in a time whereby a lot of data is “synchronized” with servers connected through the Internet. These Internet servers are used to give you the ability to manage/edit said data… and sometimes download it to your own system. Your 90’s email files are now “shared” with webmail services such as Gmail…
The problem with this process is that whilst you can change your data, you *may* wish other people to do so, as well as you being able to alter different versions of the data. To this, end “blockchain” was developed to give us the ability to record any changes to the data etc. These changes are all recorded in a leger, with new updates being recorded as “blocks”.
With a “blockchain” infrastructure, email suddenly takes on a new precedent. Instead of having “conversations” you have “chains”… with each new message being a “block” of data.
This way, each block has a “version” which you’re able to manage and specify. Not only does this mean you’re able to manage which data you’re using on your system, but due to the decentralized nature of the blockchain technology (IE the data is available from 100’s of sources), it allows not just for wider collaboration, but more accurate updates to the various data sources.
The only problem with blockchain is the *availability* of said data. Having 100’s of sources means you need to ensure that you’re able to at least specify who is able to access it. This is where encryption comes in, and is a major aspect of the blockchain offering – forming a basis for cryptocurrencies…
CryptoCurrenecies are developed off the back of blockchain technology.
Essentially, they are a way to store financial information / transactions in a decentralized database which is not just accessible, but editable to 100’s of clients (otherwise known as “nodes”). This means that “normal” people are not only able to view but also manage the data.
Obviously, for financial transactions this is not applicable, so they’ve all been encrypted with a number of different algorithms. These algorithms vary, but all do the same thing – create a set of “blocks” in a chain which represent the ability to store financial data without other people discovering what’s inside.
The way BitCoins work is that people “buy” a coin from an exchange (for a certain value) and then are able to transfer it to someone else (digitally). They are then able to exchange the file (coin) for their own currency, thus facilitating the payment. The idea behind this is that you should be able to get around central regulatory bodies (government/banks) by dealing with people directly.
Like other elements of the “blockchain” technology, cryptocurrency works by storing a large amount of data as a “chain”. Each time a financial transaction occurs on this chain, a new “block” is added to it. This is where Bitcoin et al get their value — the idea that they’re able to give you a sound basis for recording a transaction.
Unfortunately, the main problem with “BitCoins” is the same as their benefit — they’re scarce (limited supply). Due to this quirk in their algorithm, they require people to create new hashes (or BitCoins) for the next blocks on the chain. This is where the idea of “mining” has come from…
Thus, to “mine” these hash keys requires a huge amount of computing power.
What you’re doing is basically creating the next “blocks” for the different transactional data stored within a “chain” or “wallet”. The complexity of this differs depending on the algorithm required to encrypt the block (Bitcoin for example has only 21 million potential permutations). Find out how to get started mining coins today.
With “normal” / “public” blockchains, the hashes required for new blocks would not be that important. They just use the SHA-256 algorithm and can encrypt the new data to be accessible by the public. But because people who want to store financial data are unable to rely on this data alone, it’s important that you’re able to generate the various hashes for them. This is where mining comes from.
Mining for Bitcoins basically takes all the current Bitcoin transactions and then uses the various CPU/GPU capacity of a system to create a new hash for the next block in the chain.
In the beginning, this was relatively simple with many people reporting a profit from using their computing machines to calculate (“mine”) various numbers of new bitcoins. Unfortunately, due to the nature of the algorithm (self deprecating), the difficulty in creating new coins becomes exponentially more difficult with the more that are found.
Today, it would take a “mining rig” the equivalent of some of the world’s most powerful computers to ensure even a ballpark figure for the hash. This not only prevents many people from actively engaging in the “mining” operations nowadays, but also ensures that many of the lower seed entrants are kept out of the market.
Some of the world’s most popular “mining” systems have been the “Ant” mining computing device. These plug into the wall (to give it power) and then are able to calculate the various hashes to create a new “bitcoin”.
In 2017, it’s therefore somewhat safe to say that almost all of the mining potential of bitcoin has become somewhat depleted, especially if you’re doing it alone.
Whilst there are syndicates of miners who “pool” their resources together, the majority of “miners” are only doing it for profit. The profit potential of a “bitcoin” is driven almost entirely by the secondary market, which makes it a speculative trade rather than a sound investment. If you agree with this, it may be worth saying that I don’t feel “mining” is worth the time, money or energy to even bother with it.
The majority of “miners” are the same people who’d fall for get-rich-quick scams. If you’re looking for a genuine investment, you need to talk to a wealth advisor who has experience with a variety of legitimate funds.
The USD, Sterling and Euro and not going away. They are backed by huge governmental resources and, more importantly, actually form the basis of the BitCoin ideal anyway — with BitCoin acting as a middleman between two trading parties.