Bitcoin mining is the process of verifying bitcoin transactions and recording these on a digital ledger knows as a blockchain (What is Blockchain technology?).
How Does Bitcoin Mining Work?
Any time a cryptocurrency transaction occurs, miners lend their computing power to help authenticate transactions, filter out illegitimate ones and update the blockchain. Mining is essentially what keeps the entire system functioning in a safe and self-sufficient manner. As a reward, these miners are paid with coins or tokens for the cryptocurrency that they participate in. This is what’s known as a Proof of Work system.
Proof of Work
Bitcoin’s Proof of Work system involves having miners solve complicated mathematical puzzles to create blocks of verified transactions that are then added to the blockchain. These cryptographic problems are so hard to solve that miners must use specialized hardware capable of producing substantial computing power. In fact, the process is so costly that malicious actors are deterred from attempting any attacks.
It is simply more cost-effective and rewarding to participate as a legitimate miner. This is because each time a miner successfully solves a puzzle and adds a new block, the system rewards them with a certain amount of Bitcoin. The solution or “proof of their work” is then shared and verified by other miners as they add the same block to their copies of the distributed ledger.
Can I mine Bitcoin?
In theory, anyone can mine Bitcoin. In reality, because it needs specialized hardware, takes up a lot of electric power, and involves needing technical know-how and understanding, it is usually inaccessible to the many. Mining operations are usually organizations or larger groups of people, who have the capital to invest in a lot of equipment and in a location with cheaper energy costs.
If you are looking for ways to earn Bitcoin or make money using Bitcoin check out these steps to make money on Bitcoin!
Bitcoin mining vs Bitcoin buying
Bitcoin Mining can have some drawbacks:
- Costs of buying the hardware and maintenance efforts.
- You could lose money as the price of Bitcoin fluctuates when mining.
So, for small Crypto traders and investors, another option to get your hands on Bitcoin is to buy Bitcoin directly.
Benefits of buying bitcoin directly:
- Compared to Bitcoin Mining, buying happens instantly since the coins are pre-existing.
- The transaction fee is cheaper compared to the costs of buying the hardware.
Many exchanges like Phemex, offer fiat to crypto options. What this means is that you can use a credit or debit card to buy Bitcoin, which you can then trade, hodl, or exchange for alt coins. You can also buy a stablecoin like USDT with your fiat and then trade this for Bitcoin when you feel the price is going to be the best for you.