Bitcoin Mining in Simple Terms.

No, you won’t need a pickax, bucket or even a helmet with a headlight.

When you hear the phrase “Bitcoin Mining” does that conjure up images of a time in the old West where miners were frantically staking their claims and digging and panning for Gold?

Forget the tools of old IF you want to be a Bitcoin Miner you will need to obtain the NEW tools of the trade: Lots of electricity, high powered computers and of course a secure and robust internet connection. These computers will do FAST calculations and compete with other miners to be first to solve problems that will earn them Bitcoin. This process of verification makes Bitcoin transactions trustworthy and secure.

When you make purchases on or offline and use a credit or debit card, those transactions are generally verified by VISA or MasterCard.

However, Bitcoin uses no central authority for verification but instead uses NODES scattered around the world where information from transactions is stored. So when a transaction takes place, prior transactions can be checked on other Nodes for authenticity. The most significant difference here is that all information is stored on a blockchain. once it is verified and can be accessed at any time by anyone, including you!

To mine Bitcoin, one must realize it is expensive to set up with the kind of mining farm or Rig that would make it profitable. One computer alone would not be able to compete very well with some of the “farms” or “rigs” that some set up. More computing power equals more significant chances of solving the complex hashing puzzle first, so that means to be competitive, you would probably want a warehouse full of expensive GPUs or ASICs. (GPU’s = Graphics Processing Units and ASIC’s = Application-Specific Integrated Circuits. Not to mention the electricity to run such a Rig and a well air-conditioned place to house such machinery. (think of the heat they would generate!)

This is not to say mining cannot be rewarding, as it certainly CAN be. Just like the draw of early Gold mining, Bitcoin miners seem to be magnetically drawn to the thrill of the “find.”

Miners serve to keep Bitcoin decentralized as verifying the transactions come from no central area but are done all over the world before the final verified result adds to the Blockchain.

Investopia at https://www.investopedia.com/tech/how-does-bitcoin-mining-work/ has this to say: “The bitcoin reward that miners receive is an incentive which motivates people to assist in the primary purpose of mining: to support, legitimize and monitor the Bitcoin network and its blockchain. Because these responsibilities are spread among many users all over the world, Bitcoin is said to be a “decentralized” cryptocurrency or one that does not rely on a central bank or government to oversee its regulation.

This verification’s also preventing “double spending” of the Bitcoin. What would prevent a user from presenting the Bitcoin again on another transaction and, in essence, “double-spending” that Bitcoin? This process of verifying numbers against other Blocks of information makes Bitcoin miners Auditors of the precious Bitcoin transactions. This issue was seen by the founder of Bitcoin, Satoshi Nakamato, and THIS auditing or verifying is the fix.

Depending on the amount of data in a transaction, a “block” can be one transaction (rare) to many. The size block is 1 MB to make a miner eligible for a bitcoin payout but does not guarantee it as not everyone who verifies transactions gets a payout.

Why is this, you ask?

To be the winner of the Bitcoin, you must verify 1 MB of transactions, which is the easiest part, but then you also must be FIRST in doing so. A process which is known as Proof of Work.

Would Bitcoin Mining be Profitable to you?

I suppose only you can answer that given all the variables of the cost of mining. The prices of the powerful computers/hardware, the cost of electricity to run them 24/7’s, power to keep the “farm” cool where the computers are housed, and the difficulty of solving the complicated transactions in a block should be looked at as well. As the number of Bitcoin miners increases, so will the challenge because Bitcoin mining only produces a certain amount of Bitcoin every 10 minutes. You are ensuring that it remains at a static level. Given this information, if you still feel like you can make Bitcoin through “Proof of Work,” then, by all means, go for it!

Always remember you can purchase Bitcoin by direct buy from an exchange, by trade, and even Peer to Peer (from another person).

According to Investopia at https://www.investopedia.com/articles/forex/051115/bitcoin-mining-still-profitable.asp these are some KEY takeaways:

Key Takeaways:

  • Bitcoin is mined using computing rigs, which include expensive hardware.
  • Miners are rewarded with bitcoin for verifying blocks of transactions to the blockchain network.
  • As more miners compete for bitcoin rewards, the process becomes more difficult.
  • To determine whether bitcoin mining is profitable for you, consider the costs of equipment and electricity as well as the difficulty associated with mining and how the price of bitcoin will impact potential rewards.

Knowledge is power, and once you know all the ins and outs of Mining, you can decide if it’s for you.

About the author

Gail holds one of the most challenging role in the Compumatrix Leadership: Membership. She ensures that that members and potential members enjoy the benefits of being part of the Compumatrix community.

Comments

  1. Good information Gail ! I had to laugh the other day when I was playing tennis with a guy and he mentioned that he was mining BTC and had a computer for mining. I have seen pictures or huge warehouses and big 18 wheeler truck trailers filled with computer after computer, all tied to each other doing a mining operation. I can’t imagine the expense it took to set those kind of rigs up. Well, more power to my tennis buddy, (pun intended), but I hope he does make a satoshi or two in some kind of joint venture mining operation. He certainly is not going to get very far on his own.

  2. Visualization is a great tool. Sometimes I read something that I don’t quite understand. If time permits, I like to close my eyes and try to conjure up an image of what I just read. When it comes to Crypto Currency, I have the image of Bitcoin down but I still have difficulty visualizing other cryptos. I think of Bitcoin being so different from our “Fiat” systems that I can understand it. But, I am at a loss for understanding the other cryptos.

  3. This blog has a simple approach to how this mining can be explained in layman terms. Thinking of having an enormous building filled with computers, having to pay for the electricity, and the time to set up along with managing the mining unit is overwhelming. When first introduced to cryptocurrency (Bitcoin) starting in 2009 the concept was so far from comprehension. After spending the last 11 years learning what Bitcoin can do for the unbankable, and people of all walks of life, I am now sold on the idea that this is one business that can open doors never possible before. Having an open mind helps the full concept become a reality.

  4. I am surprised more people have not read this Blog — it is a great piece of information and I would have thought more people would have got involved in the discussion — I know I will re-read this a couple more times before I get the total grasp of all that is here — thank you Gail great blog —

  5. It’s hard to imagine that in the very early stages, you could actually mine bitcoin on your PC. But as the price rose, so did the incentive to mine with bigger and bigger rigs. Now you will spend more in electricity on a PC than the price of a bitcoin. so unless you join a mining group and get a share of a large rig, you are better off just buying BTC from an exchange. When new coins are created many use the BTC method and some pay out a reasonable amount per the price of electricity, but if the coin is successful, it doesn’t last long. Still the beauty of BTC is knowing that there is a limit and finite amount, unlike the madness of printing government currencies endlessly.

  6. now here we go great info Jeff N and I like that conservative thought process on utilizing a group as opposed to individual when the bills to do are more costly than you can get in return — I do that alot already here at home and I also used to run my kitchens the same way — great taste but conservative in cost– lol

  7. Thank you Gail, great information on a subject that I confess ignore or shall I say hide from. Unless one was in with Satoshi in the early days where mining from your computer was easy and rewards was pleasing 50 btc. It has become harder and expensive.
    Thank God that Henry told us No mining is required with Compumatrix. We work from home co-producing and distributing VPC and with our earning can purchase bitcoins or trade with other cryptocurrencies.

  8. Miners play a very important role nowadays. They do the hard work . Bitcoins have to be kept decentralized and so many transactions done, worldwide, have to be accounted for, in the Blockchain. We need to understand this process and let miners do their mining. Options of buying Bitcoins are increasing day by day and a new world of Cryptocurrency slowly, but surely, unfolds before us.

  9. This article opened my eyes more to the difficulty of mining. Years ago it appears mining may have been easier than in 2020. I wonder how new inventions or discoveries in energy will relate to the mining of Bitcoin. If electricity or alternate sources of energy come to market at a fraction of current cost, we may see more people get involved in mining in the future.

  10. This article spells out the Bitcoin mining process for any newbie. I particularly liked the point made that states BTC miners keep BTC decentralized. Everytime a BTC is mined, theoretically the price of BTC should go up because there are less BTC available to be found. And though I understand the current supply has increased, that will not go on forever because no new BTC will ever be created after a certain point. Also, not to mention the halving of BTC about every four years. In the early ages of BTC mining, miners got paid way more BTc than they do currently. BTC mining plays a big role in making sure BTC is functioning smoothly.

  11. Thank you for helping me understand what mining is and how to do it. I have heard about it, and now I know!! Your blogs are beneficial, especially for those of us who need to understand in-depth what we have and how to branch out to increase what we own.

  12. Many times I would read or hear about bitcoin mining but did not give it much thought especially that it does not seem to be required in our business. But I thank you Gail for writing a blog on it for everyone’s information. It is always a plus to have a general idea about anything related to cryptocurrency, even though it may not play a direct role in Compumatrix. I am just wondering, will the blockchain continue to function independently without mining? This is my first question which I might be able to answer myself after I read this article the second time.

  13. so much agree with veronica on the fact that there is so much great info and help around compu blogs on so many of the related crypto fields — in my opinion it is very good learning field — just have to read and read again and ask questions as we learn — thank you all —

  14. Thank you for this basic overview of how bitcoin mining works. I am glad I have a general understanding of how bitcoin mining works, but I do not think I will ever do bitcoin mining because it seems very difficult. I also do not think I will do bitcoin mining because I hear you have to have super computers in order to mine bitcoin now. Because of the halving and popularity of bitcoin, it is getting hard to mine and there are less profits for everytime a miner successfully mines the bitcoin.

  15. coming back here and reading thru the blog and replies and putting this with so many of the other postings over the last month — had forgotten how simple this post was and now how much it groups into so many great blogs — with the talk on nodes and a few other parts it is good information to have and add to the others — time well spent reading and adding together — thank you —

  16. again do appreciate all the effort put forth by so many here at the blog site — there is just so much great stuff and info to be put together with each persons look at how to make this a success but also make more of life a success — not always do we do it according to public opinion but when we do it Right and truthfully then we can smile and know we are going in right direction —

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