Bitcoin technology works off the blockchain, a series of transactions, or blocks, stored and verified on multiple computers. The goal of this system is decentralization, or redistributing the information from an individual to the collective. Decentralization’s benefits include transparency and security, making use of the technology for currency and finance almost inevitable. This comes in the form of cryptocurrency.
Bitcoin is the most recognized and traded form of cryptocurrency. Introduced in 2009, bitcoin first traded at $0.0008 per coin. Today, one coin trades at over $30,000, with the current all-time high at $41,000. Bitcoin is a lucrative investment, especially for early adopters. For the majority of us, however, bitcoin and cryptocurrencies remain a mystery.
Where Does Bitcoin Come From?
Bitcoin mining is a process in which computers solve complex mathematical puzzles. This procedure introduces new bitcoin (BTC) into circulation. The completion of the equation generates one block, a current yield of 6.25 BTC. Solving these difficult puzzles requires the processing power of many powerful computers, but only the individual computer that solves the puzzle receives the reward.
Equipment
Any computer with an internet connection can mine bitcoin, but turning a profit proves difficult with a simpler setup. Most bitcoin miners have specialized computers outfitted with multiple graphics processing units (GPUs) or application-specific integrated chips (ASICs). This hardware increases the computer’s processing ability, enabling it to complete mathematical equations faster.
One block’s generation takes the collective network ten minutes, with the reward going to the computer that achieved the solution. Having a computer that can process more numbers in a shorter period greatly increases the chances of receiving the BTC. This race for more powerful “mining rigs” continues to cause shortages in some of the hardware’s availability.
Negative Impacts
Hardware shortages limit the availability and drive up prices, leaving some to argue against the viability of investing in the equipment with no guarantee of profit. Other issues include power consumption and environmental impact.
Once each block verifies, the subsequent problems become increasingly difficult, requiring more processing power to complete. This results in higher overhead for individual miners as they see an increase in charges for power consumption.
This increase in consumption has an overall negative impact on the environment as well. Estimates state that the entirety of the bitcoin Blockchain used the equivalent of seven nuclear power plants, or enough to power 2.25 million homes. The subsequent CO2 emissions will only increase over time with the greater complexity of the solutions.
Mining Pools
Individual miners often form mining pools, sharing their individual processing power and distributing any BTC earned among the members. Miners receive a steadier stream of smaller profits this way. Without the support of the pool, miners face vulnerability to market volatility and overhead costs. A successfully completed block, however, can yield much greater profit for the lone miner.
Conclusion
It takes the entire bitcoin blockchain ten minutes to complete a transaction, yielding 6.25 BTC. That reward goes to the computer that successfully completed the block, resulting in miners competing for faster and more powerful computers.
With shortages in equipment and higher operating costs, getting one’s foot in the door can prove daunting. It can take months and a large initial investment before you have the available tools to get started. Once set up, a miner can join a pool, contribute their resources to a collective, share profit, and decrease risk.
Mining bitcoin is an expensive and time-consuming initial investment. How long it takes to mine your first bitcoin varies depending on the equipment you use and the people you decide to work with. This ranges from a large payout every few years to daily payments for some pools.
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