What exactly is Cryptocurrency mining? This is the process of creating a new bitcoin. Mining is also a way of validated transactions. This is a decentralized clearinghouse. It protects the system and helps create consensus throughout the network without central authority. This is a truly revolutionary technology.
Bitcoin Mechanics and Economy
You can consider mining as a contest to solve the algorithm as quickly as possible. Special hardware is used to carry out this task efficiently and quickly and people who have finished first get a prize known as a coinbase transaction.
N0des, used in mining, monitoring new. When a new block appears, Node chose the winner who stopped the old competition and gave a new start. The blocks that have been validated and added to the ledger, and the mining node combines transactions in the candidate block and start completing the algorithm.
Simply put, mining includes repeated Hashing Header blocks. In this way the parameters (nonce) are changed and the goal is, in the end, it matches certain targets. This is done by changing it randomly, until there is a match. There is no way to guess the results needed, you must go through the whole process at any time.
The Target
The already mentioned “target” is very difficult to achieve on purpose. The system adjusts it in such a way as to take about 10 minutes for all the miners (and their combined power) to reach the correct answer. The first individual who succeeds is automatically validated as having the correct answer since there is no way of guessing it. This whole process required a huge amount of electricity.
Adjustability difficulties
Every 10 minutes a new block is created. The system automatically changes the parameter so that it could fill in this time period. The difficulty depends mostly on the whole computing power of the network. If the miners are being faster than 10 minutes, then the difficulty will increase and vice versa. The more people are joining and the competition becomes bigger, the more the difficulty has to increase.
Is there a way to cheat the system?
No. There are a lot of criteria that the system checks when a new block is created before it validades it. Each node makes an individual evaluation and only after that it transfers it to the next one. In this way there is no way for another block to sneak in. This way also ensures that the real miners will receive their reward and the mined block will be added to the global ledger.
Starting to mine
Before doing anything else, you have to analyze some factors that are crucial for a successful mining career. They are:
- Initial investment – it is obvious that you will have to have good hardware as well as pay for cables, software, cooling, electricity, rent and so on. All of those things are important.
- How difficult is it to mine – when difficulty increases, you can expect that your profit will also go down. It can be observed that mining is becoming tougher and tougher every day as the participants increase in number.
- What is the value of Bitcoin on the free market? – This is a crucial point when calculating the potential profits. All investments in this crypto are very risky, but could also bring you a lot of money. You should never forget that it’s a volatile market.
- Electricity cost – this is one of the most serious expenses you will face as a miner. Hardware is also very expensive, but electricity will have to be paid every month. You will also find a way to cool off since mining generates a lot of heat. If you are located somewhere where electricity is cheap, you have an upper hand.
- Block and fee rewards – the block reward is reduced by ½ with every 210,000 blocks (or 4 years). If you are pressed for time, you will have to pay a higher miner fee to be confirmed quickly. If time is no issue, you can save money by waiting longer. This means that the rewards are unpredictable.
- Downtime – this is the worst thing. The time you are not mining, you are losing profit. You might come across overheating issues, software bugs, power outage, and many more. (*)
