Bitcoin Mining: What it is and What You Need to Know

What is Bitcoin Mining?

Bitcoin is the first-generation cryptocurrency that lives on its public ledger called the blockchain. And, Bitcoin mining is the process of verifying transactions, adding new blocks to the ledger, and minting new Bitcoins. Miners get new Bitcoins as rewards in exchange for verifying transactions and maintaining the integrity of the network.

How Does Bitcoin Mining Work?

Let us understand how the process of Bitcoin mining takes place in simple steps.

• Transactions – When Bitcoin transactions take place, they will be recorded on the blockchain ledger. A bunch of verified transactions will be formed into a block. The block stores the data of transactions with its time stamps along with the hash/code of its previous block to maintain the order.
• Block Creation – Miners collect a bunch of pending transactions and they compete to solve complex mathematical problems. This process is challenging and needs a lot of computational power and resources. They repeatedly attempt to find the hash/key of the next block that meets certain predefined criteria. Once they find the hash of the next block, they add it to the blockchain ledger.
• Block Validation – When a miner solves the puzzles and finds the solution, he announces it to the network. Then, other miners verify if it meets the predefined criteria along with verifying the transactions in that block. Once all the miners agree that the block is valid and reach a consensus, they will add it to the network. The newly added block will become a permanent part of the network and extends the chain.
• Block Reward – The miner who first solved the puzzle and found the block will be rewarded with the newly minted Bitcoins. The Bitcoin block reward reduces by half every 4 years as a part of its predefined conditions. Miners also receive transaction fees as rewards for verifying transactions.
• Difficulty Adjustment – The Bitcoin network adjusts the mining difficulty in approximately two weeks. This is to ensure that new blocks are added to the network every 10 minutes and maintain a consistent rate of block creation. The mining difficulty adjustment takes place regardless of the changes in the computational power involved in mining.

Now that you understand the process of Bitcoin mining, let us look at how you can mine Bitcoins.

How to Mine Bitcoin at Home?

Bitcoin mining is not as profitable as it was in the beginning years like 2009 and 2010. This is due to the increasing mining difficulty, electricity and maintenance costs. But, if you have access to electricity and a stable internet connection at a lower cost, it can be profitable. Let us discuss how to mine Bitcoin at home in a few steps.

Set up a Mining Rig

Firstly, you need to buy and set up the hardware equipment called a mining rig to mine Bitcoins. As we discussed, you would need a lot of computational power to mine Bitcoins. Or, you can even use ASIC (Application Specific Integrated Circuit) miners, which are the updated versions of mining rigs and are specifically designed to handle complex computations.

Set up a Bitcoin Wallet

When you solve complex puzzles and successfully mine Bitcoins, how will you receive them? So, it is important to have a Bitcoin wallet to receive and store Bitcoin rewards. If you would like to store Bitcoins for the long-term, you can choose one of the top cold crypto wallets to store Bitcoins for the long term. But, if accessibility is your preference, you can choose one of the top hot crypto wallets. And, it is best to have a dedicated wallet for all your mining activities.

Install and Configure Bitcoin Mining Software

The next step is to download and install Bitcoin mining software. This step requires some technical knowledge, so you must examine and understand different types of software and choose the one that meets your needs. Some examples of Bitcoin mining software are EasyMiner, CGMiner, and BFGMiner.

Join a Mining Pool

Whether to join a mining pool or be an individual miner is your choice. But, as the mining difficulty is increasing, it’s the best option to join a mining pool. A group of miners join a mining pool and combine their computational power to increase the possibility of finding the next block. Pools distribute the rewards to miners based on their contribution to the computational power. Some examples of crypto mining pools are BTC.com, Slush Pool, and Antpool.

After joining a mining pool, you can start solving mathematical puzzles and mine Bitcoins. However, Bitcoin mining at home can be challenging as you would need technical expertise for maintenance and setting up the devices.

Besides, mining difficulty is gradually increasing over the years and it can be difficult for individual miners to compete against mining pools and earn rewards.

Cloud Mining - An Alternative Way to Mine Bitcoin

Instead of setting up the hardware and software equipment and bearing the huge electricity and maintenance costs, you can use Cloud mining. It is the process of mining Bitcoins by renting the computation power from a cloud mining service provider.

You can choose a safe, reliable, and best cloud mining platform and create an account. Understand the platform and choose a mining plan that suits your requirements. Since you are renting the computational power, you would have to pay the service provider for using their resources.

The next step is to purchase a mining contract and start mining Bitcoins using their computational power. This process leverages advanced cloud mining technology and allows you to access resources over the Internet. The cloud mining service providers like Shamining and LetMeCloud takes care of the setup, maintenance, and operational costs of the equipment. And, you can mine Bitcoins without handling any specialized hardware equipment.