In the 4th quarter of 2017, Bitcoin hit a new high of just over $8,000 and trading volumes in U.S. dollars are in the billions. These latest developments in the cryptocurrency market show how investors are betting on future gains for the crypto currency and this has shone a spotlight on Bitcoin mining.
Many people ask; What is Bitcoin Mining?
Long story short, bitcoin mining is the process through which transactions are verified and added to the public ledger (BlockChain) and new bitcoins are introduced into the system. The mining is open to everyone who has the access to the internet and has the appropriate hardware and specialized software. In order to incentivize miners, they are rewarded with transactions fees as well as newly released coins.
Bitcoin mining is a resource-intensive exercise and extremely competitive. Additionally, it uses extremely high amounts of power and requires substantial cooling solutions. The competitiveness of the mining venture has seen major advancements in the hardware used for mining leading to the replacement of ordinary CPU with more specialized mining chips.
At the advent of Bitcoin mining, miners used the ordinary CPUs but as the needs for more efficient mining grew, these soon gave way to GPUs (Graphical Processing Units) and FPGAs (Field Programmable Gate Array). Today, we are solidly in the ASIC (Application Specific Integrated Circuit) age and with the 7nm chip on the way, Bitcoin mining is headed to a whole new level.
As the complexity of Bitcoin mining increased and more investments were required in order to successfully generate a block, miners began pooling their resources and sharing the rewards. This led to the emergence of mining pools. Mining pools provide a platform for miners to come together, share their processing power over a network, and share the rewards according to each miner’s contribution in solving a block.
Cloud mining has also taken root in the crypto-currency industry. Cloud mining provides a platform through which investors can purchase bitcoin mining contracts and earn Bitcoins without the hassles of investing in mining hardware, software, electricity, or bandwidth. Cloud mining is provided as a service to investors and all that is needed for one to participate is a computer for communication and a bitcoin wallet. The investors are charged for the service and therefore earn much less. Additionally, there are numerous cloud mining scams and investors must be vet the service providers before enlisting.
Solo and pool mining require the application of specialized software. For solo miners, the software connects the miner’s infrastructure to the blockchain while for pool miners, the software connects them to the mining pools. The role of the software is to deliver your work to the Bitcoin network as well as to receive the completed work from other miners. Moreover, the mining software provides you with important statistics such as the speed of your miner, the hash rate, fan speed, and the temperature.
The process of Bitcoin mining can be summarized as follows:
- Determine whether you want to be a solo miner, join a pool, or cloud mining
- If going into solo or joining a pool, proceed to buy the right mining equipment
- Create a Bitcoin wallet for the storage of Bitcoins
- Set up the mining equipment and install the appropriate software
- Run your miners and monitor performance
Though the process is relatively simple, it does take a lot of time to learn and resources to do correctly. But once you have the knowledge and equipment, you can quite literally make a fortune from Bitcoin.