“Mom, where do Bitcoins come from?” Well, you see, when a bright young Bitcoiner catches the eye of an aspiring miner, and they love him so much…
Wait, that’s obviously hard to fix here. Also, my whole goal is to keep things simple. However, Bitcoins are made by solving complex math problems. A powerful machine built to solve these math problems does just that. This process is called mining. The people who own these machines to earn money in Bitcoins mining are called miners. When a series of problems are solved it is known as a block. Blocks are verified by other users and once verified, they are added to what is known as the block chain. This chain continues to grow with a new block being added approximately every 10 minutes. This series is really just the main book that will continue to grow and never end.
Very powerful mining machines hog a lot of power and raise the miner’s monthly bill. The reason it holds so much power is the genius of the mathematics involved. The mining machine is required to perform complex cryptographic algorithms. After the machine solves a math problem, a block of coins is created. Every time 210,000 blocks are created, the miner’s reward is halved. It takes 4 years to achieve this. So Bitcoin is like the Olympics. Currently the block reward is 12 Bitcoins (on June 23, 2020 the reward will be only 6 coins). Those coins go to the miner who won the lucky lottery that time. There is a winner every 10 minutes. There are also many miners competing. Said miner is worth something. My enough coins and your electricity bill and then you pay.
There is another way for me. It’s called cloud mining. With this type of mining you are paying to use someone else’s network and this reduces your profits significantly. The positives of this method are that it doesn’t require you to use your electricity or buy a machine.
It seems good to me. Now I want to start mining. Is it a good idea and can I generate passive income on a regular basis? It’s possible Hold tight for now and you can make that call later.
Let’s try to break this down.
By returning the mining machine to its original form, you should start by purchasing a quality mining machine. That would set them back about $2,000. Here is a picture of a good machine (Antminer S9 from Bitmain) capable of generating a high hash rate of 14 TH/s. 1 TH/s is 1,000,000,000,000 hashes per second. This machine does that 14 times. That’s a lot of hashing power. A hash is simply a long number that the machine generates each time it tries to solve the algorithm. Again, to use my lottery analogy, all these machines are out there hoping to be the next winner.
Then the chances of winning become more and more difficult with more competition. Further complicating this issue, every time one math problem is solved, the next problem becomes more and more difficult to solve. The difficulty of the Bitcoin network changes approximately every two weeks or every 2,016 blocks. The number of Bitcoins that will ever be created is limited. This number is 21,000,000. Once we get that number, Bitcoin can never be mined again. However, the blockchain itself will continue to expand because it is used to verify each transaction or purchase.
Do you also remember that Satoshi Nakamoto nickname I wrote? Did you know that today’s math problems are 70,000 times harder for machines to solve than when we mined the 1st Bitcoin in 2009?! It is estimated that the last coin will be released in 2140, because the system is halved every four years (210,000 blocks). 16,400,000 coins have already been mined (78%) and from now on each coin will be mined at a much slower pace. Yes, you read that right. Basically, 80% came out in the first 8 years and it will take more than 100 years to leave the last 20%. If my great grandchild, great grandchild or great grandchild is reading this, I hope they are sitting pretty with our family Bitcoins now worth 220,000 Bitcoins each. We can all dream well!
Buying a mining machine or cloud mining contract is risky. While there are some great success stories out there, be sure to do your research before deciding whether mining is right for you. For every person who makes money, there are many people who lose money.
By the way, a great place to see all the cryptocurrencies out there and their coins and their full market cap, Coin Market Cap is a great resource. You can see all 700 fly-by-night altcoins there. An altcoin is another way of saying any cryptocurrency other than Bitcoin. By now you know that Bitcoin is like the Rose Bowl, the granddaddy of them all! I would really try to limit my focus and research to the top 10 for now. It’s not like there won’t be a success story of one of these worthless ones now. Finding one is like picking the right penny. It is much safer to stick with companies that are recognized by leading analysts. The same goes for the exchange you use to buy, sell and trade. That’s why I use Coinbase because it’s the most reliable, secure and convenient exchange to do my business with. They also have the most thorough vetting process when it comes to adding Altcoins.
Here is a summary of the key points from this article:
-Bitcoins are created from mining
-Mining is done by powerful machines that solve complex mathematical problems. You can also buy contracts called cloud mining if you don’t want to buy a machine.
-Problems get more difficult as coins are released and the production rate slows down
-As of May 2017, 72 Bitcoins are mined per hour (12 every 10 minutes)
-On June 23, 2020, it will be halved again until only 6 are spawned every 10 minutes.
-Almost 80% of Bitcoin’s finite amount of 21,000,000 coins has already been mined
– Competition between miners and increasingly complex mathematical problems make it difficult to become profitable mining
-The last coin is believed to have been minted in 2140