05 Apr 2018 Hristina Ivanova
Bitcoin Spotlight: Making Profits from Mining?
What's more, this system gave a whole new concept to money exchange. It introduced the average person to a digital environment where an easy and adaptive way of managing finances was integrated. It also pulled the trigger of thousands of similar developments, also known as altcoins to the bitcoin.
A key term related to bitcoins is bitcoin mining, which has turned cryptocurrency mining into an industry on its own. Bitcoin mining aims to ensure the steady release of new bitcoins into the network to keep good inflation levels.
The bitcoin mining protocol is designed to circulate 21 million bitcoins at some point in time. Miners are the ones to release the coins in the network in a controlled flow by processing all bitcoin transactions. They are the driving power of the system. Their actions ensure that the blockchain remains consistent, complete, and secure. On average, a new block gets added to the network every 10 minutes.
The mining process is done by specialized computers, which run the bitcoin software and solve a computer-based mathematical problem, called “hash”, by guessing randomly the number that’s an answer to the question. Mining can be successful only on computers with powerful hardware. By resolving the computer problem, miners chain together the correct blocks of transactions. For their successful operations, miners receive awards – newly-created Bitcoins.
To most people, this sounds like the perfect plan for easy money. Yet, there is a lot of debate on the profitability of investing in expensive mining equipment.
The current type of mining computer is called ASIC miners (application-specific integrated circuit), designed and functioning only for bitcoin mining. The more powerful they are, meaning the more guesses in a second they can make, also known as the hash rate, the higher the price is.
Equipment is the first thing one should budget when thinking about bitcoin mining. To identify if it is reasonable to make such an investment, people should consider the following too: bitcoin reward per block, mining difficulty, electricity cost, mining pools, bitcoin’s price, difficulty increase per year.
With regards to bitcoins awarded per block, currently, 12.5 bitcoins are awarded. The mining difficulty depends on the power available in the network. Mining equipment is known for the significant power consumption needed for the mining process, which makes the process even more expensive. It is also worth noting that the change of mining difficulty cannot be predicted. Even if one invests inexpensive equipment, there is no guarantee on how long it will be meeting the requirements of the process.
Due to the high level of mining difficulty, one miner is not enough to make the investment worth it. This created the need for mining pools – individual users gather together and merge their hardware power to achieve a better hash rate. In most cases, pools charge a fee for their rendering service.
Last, yet not least, bitcoin’s price is a crucial factor. In the last couple of years, Bitcoin has been reaching numerous peaks and has marked significant drops concerning its price. Due to the dynamic nature of the cryptocurrency market, it is impossible to predict the value of the coin even in a month.
To summarize, bitcoin mining profitability does not have a straight answer. It is a subjective matter that one should carefully calculate to determine if the investment is worth the money. Those who are interested can try to make an estimate using bitcoin calculators available on the internet.
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