Mining is the process of finding a hash that correctly satisfies the proof of work of a block, verifying the transactions and maintaining the blockchain.
While mining can be done theoretically with anything that supports SHA-256, and in the earlier days, it was with CPUs and GPU’s, the most efficient way of doing it now is using ASICS, or application-specific integrated circuits.
ASICS are in a nutshell something that is very good at one thing and can only do that. Mining ASICS, can only do SHA-256, but they do it very efficiently and high-speed.
But what many beginners believe is that an ASIC is equivalent to a money making machine. That is entirely false. Due to the way Bitcoin and other cryptocurrencies are programmed, the coin itself will adjust what is known as the “difficulty” of the coin.
The difficulty is the measure which is used to gauge how hard it is to completely satisfy the proof of work for a block. This difficulty changes every 2016 blocks; ideally around every 2 weeks. New ASIC comes on the block? No problem, Bitcoin’s difficulty will adjust accordingly to try and keep the block times as close to 10 minutes (may differ for different cryptocurrencies).
The opposite is true as well. A lot of people are exiting the mining game? That’s cool too, because difficulty will lower at the next difficulty change. Due to this, new bitcoins should come in at a steady stream, allowing for exchange rates to not be affected by massive sells or massive buys.
This usually increasing difficulty, usually anywhere between a 10%-20% increase in difficulty makes most mining calculators very deceptive as well. When you’re looking for a new ASIC, and the calculations show ridiculous numbers, a one-month break even period for example.
It’s probably not taking increasing difficulty into factor. The phrase “if it’s too good to be true, it probably is.” Is paramount when it comes to Bitcoin mining and cryptocurrency general.
How fast you can crunch through numbers is measured in hashes. Due to the competitive nature of mining, typically hash rates are measured in gigahashes or its abbreviation, Gh/s. 1 gigahash is equivalent to 1 billion hashes per second, which is a phenomenal amount of computational power, but that will get you nowhere. Assuming you want to make income from mining.
Nowadays, things are more commonly measured in terrahashes, (TH/S) and even petahashes (PH/S) to a lesser extent. Due to this arm race, with many data centers dedicated to just mining Bitcoins, the blockchain security is second to none.
If you’re in the market for an ASIC, knowing two terms will help you narrow down what ASIC is right for you. Those 2 terms are $/GH/s ratio and a mining calculator.
$/GH/s ratio, in simplest terms, is how much compute power you are getting for the dollar. Also known as, “bang for your buck”. If we take famous the Antminer S1, and divide its price (0.428 BTC ~ $222.3) by its hashrate (180 GH/s) you get a phenomenal ratio of 1.235.
This means for every $1 and 23 ½ cents, you are getting gigahash of compute power; Antminer S1 is a great entry point for people that want to get into mining.
A mining calculator does exactly what it sounds like. It calculates how much Bitcoin you would receive if you had an ASIC. With most good mining calculators, all you need to enter in the calculator is your hashrate, electricity rates, and wattage consumption of the unit.
If you are having trouble looking for a good calculator, We suggest either https://tradeblock.com/mining/ or http://www.bitcoinx.com/profit/ . They both have up-to-date information and fully adjustable parameters to adjust your own specific situation.
If you’re not in the mood to put up with high electricity bills, massive heat and noise output and maybe cloud mining is the thing for you. Typically, you pay a slight premium (to help the provider cover AC cause, electricity, etc.) and you can receive either mining contracts which are contracts that only run for a set amount of time at a set amount of hash rate; this isn’t good because difficulty will most likely increase. A legit company we could recommend is Cloudhasing.
Or you can buy the gigahashes in shares, which https://cex.io/ is known for. At CEX, gigahashes are treated as a commodity, you can keep them to accumulate Bitcoin, or sell them for Bitcoin.
As previously stated, the whole timestamp server and blockchain is supported when someone is confirming the transactions through proof of work. But what motivates these “miners”? Block rewards.
You see, whenever a blocks proof of work is successfully satisfied, the minor is rewarded coins. Bitcoins typical block reward is 50 coins, but every 4 years the block reward cuts in half, leaving us with the current block reward of 25 coins.
There is also a hard set limit of 21 million coins ever to be created. But we will still need miners to confirm and verify transactions on the blockchain long after all 21 million coins are made. So what will keep them motivated to continue to use compute power and electricity?
Transaction fees. Now at first, you’re saying to yourself, “You said there are no fees”. That is correct, but if you’d like to put your transaction in a higher priority, you may attach an optional fee known as the “Miners Fee”. This fee is very small, even with high priority fees usually being less than $0.40.
If mining is not your thing, but you would still like to get into Bitcoin, then perhaps buying them outright is more of your thing.
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