“Mom, where do bitcoins come from?” Well, you see when a young, shiny Bitcoin catches the eye of an ambitious miner, and because they love each other so much…
Wait, that’s obviously too difficult to solve. Also, my main goal is to keep things simple. In any case, bitcoins are obtained by solving complex mathematical problems. This is done with the help of a powerful machine designed to solve these mathematical problems. This process is called mining. The people who own these machines to earn money from mining bitcoins are called miners. When a set of problems is solved, it becomes known as a block. Blocks are verified by other users, and after they are verified, they are added to a so-called block chain. This chain continues to grow with a new block added to it approximately every 10 minutes. This chain is really just a ledger that will grow and never end.
Very powerful mining machines consume a lot of energy and add to a miner’s monthly utility bill. The reason so much energy is required is because of the genius of the mathematics involved. This requires the mining machine to perform complex cryptographic algorithms. After the machine solves the math problem, a block of coins is born. Every time 210,000 blocks have been generated, the miner’s reward is halved. It takes 4 years. So it’s kind of like the Bitcoin Olympics. Currently, the block reward is 12 bitcoins (on June 23, 2020, the reward will be only 6 coins). These coins go to the miner whose car at that moment became the lucky winner of the lottery. There is a winner every 10 minutes. There are also a lot of miners competing. Now said miner has something of value. Mine enough coins and you pay your electricity bills and then some.
There is another way of mining. This is called cloud mining. With this type of mining, you pay to use someone else’s network, and this significantly reduces your profit. The advantage of this method is that it does not require the use of electricity or even the purchase of a machine.
Sounds good to me. I want to start mining now. Is this a good idea and can I earn passive income on a regular basis? It is possible. Wait for now and you can make that call later.
Let’s try to figure it out.
Going back to the original way of machine mining, you would need to start by buying a quality mining machine. It will set you back around $2,000. Here is a photo of a good machine (Antminer S9 by Bitmain) capable of producing a high hash rate of 14 TH/s. 1 TH/s is 1,000,000,000,000 hashes per second. This car does that 14 times. That’s a lot of hashing power. A hash is simply a long number that the machine creates each time it tries to solve the algorithm. Again, to use my lottery analogy, all these machines are hashing in hopes of becoming the next winner.
Then your chances of winning become more and more difficult with more competition. Further complicating this issue is that each time a math problem is solved, the next problem becomes more difficult to solve. The complexity of the Bitcoin network changes approximately every two weeks or 2016 blocks. The number of Bitcoins that will ever be created is limited. That number is 21,000,000. Once we reach that number, bitcoins will never be mined again. However, the blockchain itself will continue to expand because it is used to verify each transaction or purchase.
Remember that Satoshi Nakamoto alias I wrote about too? Did you know that today’s math problems are more than 70,000 times harder for machines to solve than us, he mined the first bitcoin in 2009?! The final coin is estimated to be mined in 2140 because the system is halved (210,000 blocks) every four years. 16,400,000 coins (78%) have already been mined and each coin will be mined at a much slower rate from now on. Yes, you read that right. Basically 80% was mined in the first 8 years and it will take more than 100 years to mine the last 20%. If any of my great-great-grandchildren are reading this, I hope you are sitting well with our family’s bitcoins now valued at 220,000 per bitcoin. We can all dream!
Buying a mining machine or purchasing a cloud mining contract is risky. While there are some great success stories out there, be sure to research them carefully before deciding whether mining is right for you. For every person who makes money, there are many people who lose money.
By the way, this is a great place to see all the cryptocurrencies out there, their total coins and market cap, Coin Market Cap is a great resource. You can see all the 700+ altcoins that fly by overnight. Altcoin is another way of calling any cryptocurrency coin that is not Bitcoin. By now you probably know that Bitcoin is like the Rose Bowl, the granddaddy of them all! For now, I would try to limit my focus and research to the top 10. Not that there aren’t success stories of one of the near-negligible right now. Just finding one is like picking the right penny stocks. It is much safer to stick with well-known companies that are recognized by mainstream analysts. The same goes for the exchange you use to buy, sell and trade. That’s why I use Coinbase to make transactions because it’s the most reliable, secure and convenient exchange. They also have the most thorough vetting process when it comes to adding altcoins.
Here is a summary of the key points from this article:
-Bitcoins are created from mining
– Mining is carried out by powerful machines that solve complex mathematical problems. You can also buy contracts called cloud mining if you don’t want to buy a machine.
– Challenges get more complicated as coins are mined and the rate of mining slows down
-As of May 2017, only 72 bitcoins are mined per hour (12 every 10 minutes)
-On 23 June 2020 this will be halved again to only 6 every 10 minutes
-Almost 80% of the final Bitcoin supply of 21,000,000 coins has already been mined
-Competition among miners and increasingly complex math problems make it harder to profit
– The last coin is estimated to be minted in 2140