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You know what is bitcoin, let me give you some information about it if you don’t know.
What Is Bitcoin ?
Bitcoin is a digital currency that was created in January 2009. It follows the ideas set out in a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto.1 The identity of the person or persons who created the technology is still a mystery. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, it is operated by a decentralized authority.
Now let go to our main topic ,
What Is Bitcoin Mining?
Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. It is performed using very sophisticated computers that solve extremely complex computational math problems.
Cryptocurrency mining is painstaking, costly, and only sporadically rewarding. Nonetheless, mining has a magnetic appeal for many investors interested in cryptocurrency because of the fact that miners are rewarded for their work with crypto tokens. This may be because entrepreneurial types see mining as pennies from heaven, like California gold prospectors in 1849. And if you are technologically inclined, why not do it?
However, before you invest the time and equipment, read this explainer to see whether mining is really for you. We will focus primarily on Bitcoin (throughout, we’ll use “Bitcoin” when referring to the network or the cryptocurrency as a concept, and “bitcoin” when we’re referring to a quantity of individual tokens).
Mining and Bitcoin Circulation
In addition to lining the pockets of miners and supporting the bitcoin ecosystem, mining serves another vital purpose: It is the only way to release new cryptocurrency into circulation. In other words, miners are basically “minting” currency. For example, as of Nov. 2020, there were around 18.5 million bitcoins in circulation.1 Aside from the coins minted via the genesis block (the very first block, which was created by founder Satoshi Nakamoto), every single one of those Bitcoin came into being because of miners. In the absence of miners, Bitcoin as a network would still exist and be usable, but there would never be any additional bitcoin. There will eventually come a time when Bitcoin mining ends; per the Bitcoin Protocol, the total number of bitcoins will be capped at 21 million.2 However, because the rate of bitcoin “mined” is reduced over time, the final bitcoin won’t be circulated until around the year 2140. This does not mean that transactions will cease to be verified. Miners will continue to verify transactions and will be paid in fees for doing so in order to keep the integrity of Bitcoin’s network.
Aside from the short-term Bitcoin payoff, being a coin miner can give you “voting” power when changes are proposed in the Bitcoin network protocol. In other words, miners have a degree of influence on the decision-making process on such matters as forking.
How Much a Miner Earns
The rewards for bitcoin mining are reduced by half every four years. When bitcoin was first mined in 2009, mining one block would earn you 50 BTC. In 2012, this was halved to 25 BTC. By 2016, this was halved again to 12.5 BTC. On May 11, 2020, the reward halved again to 6.25 BTC. In November of 2020, the price of Bitcoin was about $17,900 per Bitcoin, which means you’d earn $111,875 (6.25 x 17,900) for completing a block.3 Not a bad incentive to solve that complex hash problem detailed above, it might seem.
If you want to keep track of precisely when these halvings will occur, you can consult the Bitcoin Clock, which updates this information in real-time. Interestingly, the market price of bitcoin has, throughout its history, tended to correspond closely to the reduction of new coins entered into circulation. This lowering inflation rate increased scarcity and historically the price has risen with it.
If you are interested in seeing how many blocks have been mined thus far, there are several sites, including Blockchain.info, that will give you that information in real-time.
Risks of Mining
The risks of mining are often that of financial risk and a regulatory one. As mentioned, Bitcoin mining, and mining in general, is a financial risk. One could go through all the effort of purchasing hundreds or thousands of dollars worth of mining equipment only to have no return on their investment. That said, this risk can be mitigated by joining mining pools. If you are considering mining and live in an area that it is prohibited you should reconsider. It may also be a good idea to research your countries regulation and overall sentiment towards cryptocurrency before investing in mining equipment.
One additional potential risk from the growth of bitcoin mining (and other proof-of-work systems as well) is the increasing energy usage required by the computer systems running the mining algorithms. While microchip efficiency has increased dramatically for ASIC chips, the growth of the network itself is outpacing technological progress. As a result, there are concerns about the environmental impact and carbon footprint of Bitcoin mining. There are, however, efforts to mitigate this negative externality by seeking cleaner and green energy sources for mining operations (such as geo-thermal or solar), as well as utilizing carbon offset credits. Switching to less energy-intensive consensus mechanisms like proof-of-stake (PoS), which Ethereum is planning to do, is another strategy; however, PoS comes with its own set of drawbacks and inefficiencies.
Source : investopedia.com