16 November 2020
The first time I heard about the idea that you could "mine" something on the internet which you could then exchange for real cash, I was completely blown away by the idea. A million questions popped into my head. Why isn't everyone putting a Bitcoin machine in their house? What I am actually doing when I mine something? Can anyone mine or is it only for the super-rich? What about supercomputers? Couldn't they overshadow all other processing power in the world?
Let's get into it and find out what Cryptocurrency Mining is exactly.
1. What is cryptocurrency mining?
Miners, through the process of Mining, drive a cryptocurrency network. A miner is essentially a computer that processes blocks of transactions for which it gets rewarded. Without these miners, there would be no one to actually facilitate the process of sending and receiving cryptocurrencies on the blockchain.
2. Can I mine Bitcoin directly by myself?
Yes, you can, but it is difficult to be successful. Striking gold with Bitcoin is more or less random. In other words, even with a powerful computer, you probably won't mine a Bitcoin any time soon. That is why people prefer to use "pools".
3. What is a mining pool?
A mining pool allows many different people to combine their computing power and together attempt to mine bitcoins. By doing so, there is a bigger chance of someone hitting gold, and that gold is then distributed amongst the entire pool.
Unless you are opening a factory of miners, you will most likely want to start with a mining pool.
4. I heard there are only 21 000 000 Bitcoins and we've mined most of them?
About 85% of all Bitcoin's supply limit of 21 million coins has been mined. That means we have about 3 million Bitcoin left to mine.
5. What happens when we run out of bitcoins to mine?
Miners will still have a reason to continue mining and that reason is transactional fees. Even though Bitcoin's cannot be created through mining after this point, miners can still be rewarded in Bitcoin for the mining that they do.
6. Would it be wise to start crypto mining?
It is extremely difficult to compete with the guys who do this on an industrial level and in places where power is extremely cheap. You are very likely to lose money if you get into mining. If you want to see some numbers of someone who did get into Bitcoin mining (and regrets it) please read What I learnt from 5 months of crypto mining.
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