“Mommy, where do Bitcoins come from?” Well, you see, when a bright young Bitcoin catches the eye of an ambitious miner, and because they love each other so much …
Wait, that’s obviously too difficult to figure out here. Also, my whole goal is to simplify things. Regardless, Bitcoins are created by solving complex mathematical problems. This makes it a powerful machine that is designed to solve these mathematical problems. This process is called mining. The people who own these machines to make money by mining Bitcoins are called miners. When a batch of problems is solved, it is known as a block. The blocks are verified by other users and once they are verified, they are added to what is called the blockchain. This chain continues to grow and a new block is added to it approximately every 10 minutes. This chain is really just a ledger that will continue to grow and will never end.
Very powerful mining machines consume a lot of energy and add to the miner’s monthly utility bill. The reason it requires so much power is the math genius involved. It requires the mining machine to perform complex cryptographic algorithms. Once the machine solves a mathematical problem, a block of coins is born. Every time 210,000 blocks are created, the reward for the miner is cut in half. It takes 4 years to achieve it. So it’s like a Bitcoin Olympiad. Currently, the block reward is 12 Bitcoins (on June 23, 2020 the reward will be only 6 coins). Those coins go to the miner whose machine was the lucky lottery winner at the time. There is a winner every 10 minutes. There are also many miners competing. Said miner now has something of value. Mine enough coins and pay your electricity bill and something else.
There is also another way to make mine. It’s called cloud mining. With this type of mining, you are paying to use someone else’s network and that significantly reduces your profits. The positive aspects of this method are that it does not require the use of electricity or the purchase of a machine.
Sounds good to me. I want to start mining now. Is it a good idea and can I generate passive income on a regular basis? Possibly. Hold on tight for now and you can make that call later.
Let’s try to break this down.
Going back to the original way of mining machines, you would have to start by buying a quality mining machine. That would cost you around $ 2,000. Here’s a picture of a good machine (Bitmain’s Antminer S9) capable of creating a high hash rate of 14 TH / s. 1 TH / s is 1,000,000,000,000 hashes per second. This machine does 14 times more. That’s a lot of hashing power. A hash is just a really long number that the machine creates every time it tries to solve the algorithm. Again, to use my lottery analogy, all of these machines are out there hoping to be the next winner.
So your chances of winning are getting tougher with more competition. To further complicate this matter, each time a math problem is solved, the next problem becomes increasingly difficult to solve. The difficulty of the Bitcoin network changes approximately every two weeks or 2016 blocks. The amount of Bitcoins that will ever be created is finite. That number turns out to be 21,000,000. Once we hit that number, another Bitcoin can never be mined again. However, the blockchain itself will continue to expand because it is used to verify every transaction or purchase.
Do you remember that pseudonym Satoshi Nakamoto that I also wrote about? Did you know that today’s math problems are more than 70,000 times harder for machines to solve than they were when you mined the first Bitcoin in 2009? The estimate is that the final coin will be mined in 2140 because the system is halved every four years (210,000 blocks). 16,400,000 coins have already been mined (78%) and each coin from now on will be mined at a much slower rate. Yes, you read that right. Basically 80% was mined in the first 8 years and it will take over 100 years to extract the final 20%. If any of my great-great-grandsons are reading this, I hope they feel good about our family’s Bitcoins now valued at 220,000 per Bitcoin. We can all dream well!
Buying a mining machine or buying a cloud mining contract is risky. While there are some great success stories, be sure to research them thoroughly before deciding if mining is right for you. For every person who makes money, there are many people who lose money.
By the way, a great place to see all the cryptocurrencies out there and their total coins and market capitalization, Coin Market Cap is a great resource. You can see the 700 most fly-by-night altcoins out there. An altcoin is just another way of saying any cryptocurrency currency other than Bitcoin. By now you probably know that Bitcoin is like the Rose Bowl – everyone’s granddaddy! I would really try to narrow my focus and research into the top 10 for now. Not that there aren’t any success stories from one of the almost useless now. It’s just that finding one is like choosing the right penny. Sticking with established companies that are being recognized by mainstream analysts is a much safer move. The same goes for the exchange you use to buy, sell, and trade. That is why I use Coinbase to trade as they are the most reliable, secure and convenient exchange. They also have the most comprehensive research 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 done 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.
-The problems become more difficult as coins are mined and the production rate slows down
-As of May 2017, only 72 Bitcoins are mined per hour (12 every 10 minutes)
-On June 23, 2020, this will be halved again to just 6 created every 10 minutes
-Almost 80% of Bitcoin’s 21,000,000 finite coins have already been mined
-Competition between miners and increasingly complex math problems make it more difficult to make mining profits
-It is estimated that the final coin will be mined in 2140