Bitcoins function similarly to currency, yet they are mined similarly to gold. So, how can one participate in the current bitcoin craze?
If done correctly and you’re ready to face the investment risk, you may end up with a few bitcoins of your own—the biggest bitcoin exchange now has an average weekly price of $945.
This is how you do it.
What is the total number of bitcoins?
The individual(s) who devised the algorithm under the pseudonym Satoshi Nakamoto—which is as popular a name in Japanese as Steve Smith—set a fixed limit on the amount of bitcoins that would ever exist: 21 million. There are now about 12 million in circulation. That implies there are almost 9 million bitcoins out there waiting to be found.
The amount of bitcoins mined has increased dramatically since 2009. That’s how the system was designed: simple to mine at first, but tougher as we get closer to the 21 millionth bitcoin. The last bitcoin will be mined in the year 2140 at the present pace of generation.
What is mining, exactly?
Bitcoins may be obtained in three ways: by purchasing them on an exchange, accepting them in return for goods and services, or mining fresh ones. The discovery of new bitcoins is referred to as “mining” in the same way that gold is discovered. In actuality, it’s just the process of verifying bitcoin transactions.
Eric, for example, uses bitcoin to purchase a television from Nicole. Miners begin to validate the transaction to ensure that his bitcoin is a real bitcoin.
It’s not just one transaction that people are attempting to verify; it’s a number of them. All of the transactions are grouped into “block chains,” which are boxes with a virtual padlock on them.
Miners use software to locate the key to unlock the padlock.
The box pops open and the transactions are validated once their computer detects it. The miner is rewarded with 25 freshly created bitcoins for locating the “needle in a haystack” key.
According to Blockchain.info, a major source for the latest real-time bitcoin transactions, the current number of tries to locate the proper key is about 1,789,546,951.05.
Despite the high number of tries, the 25-bitcoin award is distributed every 10 minutes or so. The bitcoin incentive for confirming transactions will decrease to 12.5 new bitcoins in 2017 and every four years afterwards.
On a tight budget, how do you mine?
Bitcoin mining is simple enough for a computer beginner to accomplish, since it just requires basic software and specialized gear.
The mining software is simple to use and open source, which means it is free to download and use.
To keep what is earned, a potential miner will require a bitcoin wallet, which is an encrypted online bank account. Wallets, like other bitcoin situations, are unregulated and vulnerable to threats. Late last year, hackers perpetrated a bitcoin robbery on the website Inputs.io, stealing $1.2 million worth of the money. Bitcoins, like cash, are fully gone when they are lost or stolen. There is no way to recover your losses if your bitcoins are not backed by a central bank.
The second piece of software required is mining software, of which GUIMiner is the most common. When the application is activated, it starts mining on its own, hunting for the magic combination that will unlock the block of transactions’ padlock. The software continues to operate, and the quicker and more powerful a miner’s computer is, the faster bitcoins are generated.
When bitcoin mining first started, ordinary PCs were fast enough to create bitcoins. That’s how the system was designed: simpler to mine at first, then harder as more bitcoins are created. Miners have had to upgrade to quicker technology in order to maintain creating new bitcoins during the previous several years. ASICs (application-specific integrated circuits) are now widely employed. Aside from the programming language, this simply implies that the hardware is optimized for a single task—in this instance, mining.
New speedier technology is being developed at a quick pace by several mining start-ups, and a complete mining rig capable of finding new bitcoins on its own now costs about $12,000.
Joining mining pools is one method to avoid such a large expenditure. Pools are a collection of bitcoin miners from all around the world that combine their computing resources to mine bitcoins. Small-time miners may earn a proportion of bitcoins by contributing their computer power to popular sites like Slush’s Pool.
The higher the proportion of bitcoins obtained, the quicker your machine can mine and the more power it contributes to the pool. Bitcoins are divided into eight decimal places. Pool sites, like wallets, are unregulated, and the pool operator—who gets all of the money mined—is under no legal responsibility to distribute their part to everyone.
Joining a pool allows you to utilize less expensive hardware. USB ASIC miners, which can be plugged onto any regular USB port, start at $20. “For a few hundred bucks, you could earn a few of dollars a day,” says Brice Colbert, a cryptocurrency miner located in North Carolina and owner of the website cryptojunky.com. “You’re not going to earn a lot of money off of it, and you may lose money with low-grade ASICs depending on the exchange rate.”
When it comes to mining, another method to lose money is via electricity use. Profits now exceed the cost of the energy required to mine. Because of the erratic nature of bitcoin’s price, this might alter suddenly.