What is Bitcoin Mining? Does it mean you can generate bitcoin in computer? Is it profitable to mine bitcoin nowadays?
For beginners, Is this the questions you have right now? I'll explain as hard as i can to answer this question. But first, let us know what is a bitcoin?
Bitcoin
A digital currency introduced by Satoshi Nakamoto in 2009 that uses peer to peer technology to facilitate instant payment.
It is made to decentralize alternative in the banking system, this mean the system can transfer funds to one account to another without central authority.
In central authority, transferring is very easy. You tell the bank to transfer a fund to another account. In this case the bank has all the power because they are the only allowed to update the ledger that hold the balances in the system.
In decentralize system, you are allowing someone to update your ledger without giving them so much power. The next question is, how can you be so sure that this someone won't be corrupt and negligent? This is controlled by the bitcoin system called protocol.
The protocol solves this problem by allowing anyone to particpate in updating the ledger of bitcoin transaction. All they need to do is guess a random number that solves the equation given by the system. This guessing is done by computer. The more powerful computer you have, the more guesses you can make per second increasing your chances to solve the equation. If your the first to solve an equation, you can get a fragment of bitcoin in this transaction. Now this is call bitcoin mining.
Bitcoin Mining
The mining process involves your mining computer, once your computer solves the equation, it determines the pending transaction that will be group together in next transaction in the blockchain. Compiling this blocks will be the moment of glory because you are the one will be the temporary banker of the bitcoin transaction who has the power to update the blockchain. The block that is created along with the solution is sent to the bitcoin network so that other computers can validate it.
Mining is a form of guessing game. Miners with more computing powers has the higher chance of winning the game, but due to the law of statiscal probability, it is unlikely that the same miner can solve again the equation.
After solving an equation, the system generates a fix amount of bitcoin that will be given as a reward. This is a compensation for the time and energy you used in completing and solving the mathematical equation.
Mining Difficulty
Satoshi Nakamoto crafted the rules of mining in a way the more mining power the network has, the harder it is to guess the mathematical equation. The mining process is self adjusting to the accumulated mining power the network has. The more miner joins the network, it will get harder to solve the equation.
Miner Evolution
During back in 2009, you can mine bitcoin thru your cpu because there are few competitors in the mining process. In 2011, the competition is rising, people uses gpu, a processing unit added to computer to carry out more complex solution in solving equations. 1 gpu is equivalent to 30cpu. Later on, people began using fpga added to a computer to solve more complex equation like gpu but 100x faster. The downside of fgda is it is hard to configure. In 2013, asic mining is introduced. ASIC hardware is manufactured solely for the purpose of mining bitcoin.
Mining Pools
Miners forms a group to compete with large mining companies, it is called pool. If this pool wins the competition, the reward is distributed to the members depending on the mining power that they contributed. Mining pools help small miners to join the mining games and gets a chance to earn bitcoin.
Mining profitability
Mining profitability depends on lots of factors:
Hash rate - a hash is the mathematical equation your computer needs to solve
Block reward - the reward the system generated when a miners solves the equation
Mining difficulty - the mining power depends on the mining powers that is accumulated to a network
Electricity cost - miner consumes electricity to power the computer or for cooling them down
Power consumption - mining computers have different mining powers.
Pool fees - if you join a mining pool, they get a percentage of your earnings for the payment of their service
Bitcoins price - it is hard to predict the price in the future
Difficulty increase - no one can predict how many miners will join the mining game
The last two factors will be the biggest variable to answer the question, if mining bitcoin is profitable?
Other types of Mining
Cloud Mining - pay someone to mine for you. You don't have to buy rigs or equipment. You just need to invest an amount of your money
Mobile Mining - some application claim to mine bitcoin, but take note that mobile phone has a low processing unit. It will end of draining your phone in the long run and i think that is not profitable
Web Mining - a website owner hijack sthe processing power of the computer who visited the site
Conclusion
The conclusion is mining bitcoin may be profittable as long as the variables needed in moning is met. Mining is like gambling or investing, it is just a matter of good luck.
"Genius is the gold in the mine, talent is the miner who work and brings it out" - Marguerite Gardiner
