The last year has seen Bitcoin grow over 500% as the world becomes more and more obsessed with blockchain technologies. There are many ways to get your hands on these coveted cryptocurrencies (Bitcoin in particular), one of the most popular of which is mining.
Mining is the process where transactions between users are verified and added to the blockchain public leisure. It is responsible for introducing new coins into the existing circulating supply without the need for a third-party central authority (i.e. a central bank). Bitcoin mining is based on a consensus algorithm called ‘Proof of Work’.
Once miners have verified 1 MB worth of bitcoin transactions, known as a “block”, those miners are eligible to be rewarded with a quantity of bitcoin. In order to receive bitcoin, not only do miners have to verify these transactions, they also must be the first miner to arrive at the right answer, or closest answer to a numeric problem given to them. This is what is meant by ‘Proof of Work’.
When mining first began years ago, the process was expensive and complicated. The prices of mining equipment skyrocketed, and mining rigs were inefficient, clunky and loud. These days, mining has been made easier and more profitable for several reasons.
The first reason is obvious: it is simply that the mining hardware today is far superior to the hardware used years ago. Newer, more compact equipment is faster and more efficient, allowing miners to verify code quicker, and thus receive their bitcoin at a faster rate.
Not only is the equipment more efficient but it also costs less to run. Mining requires an enormous amount of power and the cost of electricity in running the equipment can be quite considerable. As equipment becomes more efficient, it requires less power to run the same calculations. Further, the recent increases in price will make mining even more profitable. As the prices rise, so too does the price for verifying transactions.
If you are new to mining, the selling fees today may be more attractive than they were historically. The fees change over time due to the fee formula of the specific exchange and the state of the order at any given time. On the other hand, experienced miners may not worry about these things as they get rid of their earnings through ‘Over the Counter’ desks that have very low fees.
Lastly, the existence of mining pools has increased miners chances of profitability if they know what they are doing. A mining pool is a group of miners who come together to look for transactions, thus raising their chances of finding a block. As Bitcoin becomes more profitable, there are more bitcoin mining machines looking for a block to mine.
Although mining has become more profitable, it has also become a much more difficult job as eluded to in the last paragraph. Hashrate, which is a measure of a miner’s computational power, has improved recently. In other words, the more miners mining bitcoin and hoping for a reward, the harder it becomes to solve the puzzle. This computational arms race will make the industry more difficult to enter into and likely less profitable for newer miners, while experienced miners may reap the rewards of the lucrative world of blockchain technology.