Bitcoin mining involves solving complex math problems to verify transactions and create new bitcoins. Miners earn a predetermined amount of Bitcoin when they successfully mine a new block.
Bitcoin is a digital currency that has gained a massive following due to its unpredictable price fluctuations and high value since its inception in 2009.
With the soaring prices of cryptocurrencies, especially Bitcoin, it's no surprise that interest in mining has also increased. However, for the majority of people, the chances of successfully mining Bitcoin are slim due to its complex nature and exorbitant costs. Here, we will explain the fundamentals of Bitcoin mining and highlight some of the key risks you should be aware of.
Bitcoin mining statistics
* A miner earns 6.25 Bitcoin for validating a block on Bitcoin's blockchain (~$227,500 as of Nov. 2023).
* According to the Cambridge Bitcoin Electricity Consumption Index, creating Bitcoin uses 147 terawatt-hours of electricity each year, which is more than the Netherlands or the Philippines consume. As of August 2021, it takes nine years of household-equivalent electricity to mine a single Bitcoin.
* The price of Bitcoin has been highly volatile over time. In 2020, it was traded at a low of $4,107 and reached an all-time high of $68,790 in November 2021. As of November 2023, its value was around $36,400.
* The odds of a modestly powered solo miner solving a Bitcoin hash were about 1 in 26.9 million in January 2023, depending on the computing power of the miner and others.
* As of January 2022, the United States (37.4 percent), Mainland China (18.1 percent), and Kazakhstan (14.0 percent) were the largest Bitcoin miners, according to the Cambridge Electricity Consumption Index.
Understanding Bitcoin
Cryptocurrencies are digital mediums of exchange that exist solely online, and Bitcoin is one of the most popular among them. Bitcoin operates on a decentralized computer network or distributed ledger, which keeps track of all transactions made in the cryptocurrency. Whenever a transaction is verified and processed by computers on the network, new bitcoins are created or mined. These computers, also known as miners, process the transactions and receive payment in Bitcoin in return.
Blockchain technology powers Bitcoin and many other cryptocurrencies. It is a decentralized ledger that records all transactions across a network. Approved transactions are grouped together to form a block, which is then added to a chain. It is similar to a long public record that serves as a running receipt. Bitcoin mining is the process of adding a block to the chain.
How Does Mining Work
Successfully adding a block, Bitcoin miners compete to solve extremely complex math problems that require the use of expensive computers and enormous amounts of electricity. To complete the mining process, miners must be first to arrive at the correct or closest answer to the question. The process of guessing the correct number (hash) is known as proof of work. Miners guess the target hash by randomly making as many guesses as quickly as they can, which requires major computing power. As more miners join the network the difficulty increases
However, If a miner is able to successfully add a block to the blockchain, they will receive 6.25 bitcoins as a reward. The reward amount is cut in half roughly every four years, or every 210,000 blocks. As of November 2023, Bitcoin traded at around $36,400, making 6.25 bitcoins worth $227,500. Isn't it beautiful?
Is Bitcoin mining profitable?
According to a 2019 report from the Congressional Research Service.
It depends. Even if Bitcoin miners are successful, it’s not clear that their efforts will end up being profitable due to the high upfront costs of equipment and the ongoing electricity costs. The electricity for one ASIC can use the same amount of electricity as half a million PlayStation 3 devices.
The more the difficulty and complexity of Bitcoin mining increases, the computing power required has also gone up. Bitcoin mining consumes about 147 terawatt-hours of electricity each year, more than most countries, according to the Cambridge Bitcoin Electricity Consumption Index. You’d need 9 years’ worth of the typical U.S. household’s electricity to mine just one Bitcoin as of August 2021
