NEW ZEALAND – Guest Writer –The sixth in the series of “How to Bitcoin” articles introducing you to Bitcoin and what you can do with the cryptocurrency. Here is an overview of how BTC is electronically processed, we call it mining.
Electronically Processing BTC
As mentioned in the introduction, BTC is processed by computing power and recorded in a public ledger (Blockchain) with the help of a network of computers. The processing of BTC transactions is termed ‘mining’. BTC mining rewards people with computer power by generating BTC and giving fees paid to people who mine.
Currently, BTC is processed by an algorithm called SHA-256. Special mining equipment may be purchased to process these transactions with the most advanced miners being purchased by the Chinese maker Bitmain
Mining can be done with either a physical miner or a virtual miner. You then can mine as a collective (Pool) and share the profits, which is the most common way or to solo mine where you maximise profit.
When mining is done as a collective where multiple people ‘point’ their miners to an online site you can mine and collect newly produced BTC and the fees that are paid by other people. This is shared out with all the miners depending on how fast each computer miner is. The faster the computer miner, the more BTC earned. It is more complicated than this and a lot of research needs to be done.
Pointing miners together with other people guarantee regular payouts daily (or more often) but profits can vary depending on what online site you point your miner towards (http://poolpicker.eu/table?algo=sha-256). There are a lot of online BTC profit calculators that can help choose what pool to use to maximise profits.
A lot of research needs to be done with mining, as this is a complicated model. As BTC is only software and it has many variables it needs to calculate. Just to name a few, BTC difficulty may change with the available network (this means profit changes, and mostly decreases if computing power remains the same). The value of how much BTC is worth and how fast the miner is.
Solo mining is where you as an individual point your miner to solve equations on the Blockchain and are rewarded with the most BTC. This is only true if you have huge amounts of speed with your miner and are having a good probability.
This is why pointing miners together with other people is more common as the combination of all the miners then acts as one huge miner and will mine BTC quickly. The BTC from the processing of transactions is then paid out daily or sometimes more often back to the smaller miners if in a Pool. In solo mining, you will receive close to 100% of the profit (minus a fee).
- Collectively joining other miners (payouts are shared according to miner speed and paid daily or more often)
- Solo Mining (More BTC earned but requires fast miners)
Problems with any type of Pool mining is you must trust the Pool you are mining with not to steal you BTC or get hacked if you are to store the coins there. However, payments can be sent to your private wallet and this is an option offered by many Pools.
The problems with solo mining are you are required to have a huge amount of mining power to get regular payments. Technology advances will also require you to purchase new miner’s just to keep down electricity costs and the value to BTC needs to be in favour. Over time the newly created BTC payouts will reduce.
- With collective mining, websites can be hacked
- Solo mining calculations are complicated and new miners need to be purchased regularly to remain efficient
The advantage of solo mining is there is a higher chance to make a profit, and since the BTC earned is sent to your private wallet it is more secure than keeping it online.
Bitmain has a good reputation for online mining (https://www.antpool.com/home.htm) or another option to turn a profit is ‘Cloud Mining’.
Buying online, mining speed for BTC (currently measured in gigahash per second: GHS) is the fast way to turn a profit. Each Company reputation again needs to be considered, as a lot of faith in these companies is placed not to steal your money or to go bankrupt, or even hacked.
As technology advances, these companies buy newer miner models and can sell GHS at a set value of BTC given the market price. Any buyer can purchase this. The more GHS you buy, the more BTC is earned. One of the most trusted online cloud mining is https://www.hashnest.com.
Alternatively, you can also hire individual miners online for a set price of BTC. This is not really cloud mining, as cloud mining is 24 hours a day, 7 days a week, 365 days a year. Hiring individual miners are only for a set period of time and are prone to going down due to loss of power or network connection. This would mean that you are no longer any profit and are paying for nil speed. Certain websites can broker hiring of miners such as https://www.nicehash.com Nicehash does not charge BTC when the miners are not working.
- Cloud Mining is the easiest way to mine BTC
- Can rent online individual miners
Cloud Mining would be a medium to high skill level to profit but once set-up can be considered a passive income with no input. This income will decrease over time but if you can consider all the variables necessary then you can get a good return on investment.
Caution: There are a lot of scams that pretend to be Cloud Miners. Many of these so-called “cloud mining” websites lure unsuspecting victims to buy mining contracts which actually pay out in the beginning – this to ensure others will be lured into knowing the contracts pay out. Unfortunately, this ends in tears as the happy miners are not able to access the website as it goes offline without warning… the perpetrators have run off with the money.
Overview for Cryptocurrencies
Coinmarketcap.com will display the marketcap, price (in USD or BTC + others) and historical graphs for the currency you wish to display. It is the most popular website to display this type of data. If you click on the name, price, graphs etc this will take you to another menu where data is presented in more detail. There are also other ‘Tools’ available to help re-organise this data and is an easy website to navigate. When new currencies become available on the market, the developers of these coins will often quickly list their coins on this site, however, not all coins are listed here.
There are other sites to take a look at:
Statistics can be found on:-
There are many ways to join the community of Bitcoin and altcoins. From an easier perspective just buying and holding Bitcoin would be an introduction into the crypto world. All aspects could be tailored to your computing lifestyle and your Bitcoin could be as secure as being offline on a paper wallet held by you physically in a safe place to other wallets that best suit you.
A very small step up in this skill level would be to buy and sell other altcoins by using BTC first. In fact, this would include all crypto-assets, commodities, currencies, and lending. Your interpretation of charts would dictate how much skill is required and how complicated your strategies are. You also have the knowledge to diversify.
Any research would obviously lead to an increase in skill. Medium to high-end skill includes mining and utilising software skills to your advantage.
It is very possible to make a profit from Bitcoin surpassing any “real world” rewards. The increase of attention with the current growth, the value of BTC keeps rising. The success of BTC has given rise to numerous other cryptocurrencies, some with strong use cases such as Ethereum – Smart Contracts, Ripple – Inter Bank cross-border settlement, and EOT – Encryption of physical devices connected to the Internet (IoT). Take advantage now while BTC is still in its infancy, come join the crypto world.
One very important point: Cryptocurrency is a very young technology and considered experimental, therefore can fail or be volatile for a number of different reasons. Do not consider cryptocurrency as an investment. Never ‘invest’ in any amount you are not prepared to lose in its entirety.
More in the “How to Bitcoin” series:-
Get your copy of What is Bitcoin
This e-book on Amazon explains what Bitcoin is, it explains that Bitcoin (BTC) is a virtual currency, digital not physical, and independent of banks. Useful links and resources for the newbie and advanced Bitcoiner or cryptocurrency enthusiast.