“Mommy, where do Bitcoins come from?” Well, you see, when a shiny young Bitcoin catches the eyes of an ambitious miner, and because they love each other very much… Wait, that’s obviously too difficult to solve here. Besides, my whole goal is to keep things simple. Anyway, Bitcoins are made by solving complex math problems. This is done by a powerful machine that is built to solve these math problems. This process is called mining. People who own these machines to make money mining Bitcoins are called miners. When a batch of problems is solved it becomes known as a block. Blocks are verified by other users and once they are verified, they get added to what is called the block chain. This chain continues to grow with a new block being added to it roughly every 10 minutes. This chain is really just a master ledger that will continue to grow and never end.
The very powerful machines that mine zap a lot of power and drive up the miner’s monthly utility bill. The reason it takes so much power is the genius of the mathematics involved. It requires the mining machine to perform complex cryptographic algorithms. Once a math problem is solved by the machine, a block of coins is birthed. Every time 210,000 blocks have been created, the reward to the miner is halved. It takes 4 years to accomplish this. So it’s kind of like a Bitcoin Olympics. Currently the block reward is 12 Bitcoins (on June 23, 2020 the reward will only be 6 coins). Those coins goes to the miner whose machine was the lucky lottery winner at that time. There is a winner every 10 minutes. There are also a lot of miners competing out there too. Said miner now has something of value. Mine enough coins and you pay your electricity bill and then some.
There is also another way to mine. It’s called cloud mining. With this type of mining you are paying to use someone else’s network and that cuts into your profits significantly. The positives to this method are that it doesn’t require using your electricity or even buying a machine.Sounds good to me. I want to start mining now. Is it a good idea and can I generate passive income on a regular basis? Possibly. Hold tight for now and you can make that call later.
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Let’s try to break this down.
Going back to the original way of machine mining, you’d have to start with buying a quality mining machine. That would set you back about $2,000. Here is a picture of a good machine (Antminer S9 from Bitmain) capable of creating a high hash rate of 14 TH/s. 1 TH/s is 1,000,000,000,000 hashes per second. This machine does 14 times that. That’s a lot of hashing power. A hash is just a really long number that the machine creates each time trying to solve the algorithm. Again, to use my lottery analogy, all these machines are out there hashing away hoping to be the next winner.
Then, your chances of winning are getting increasingly more difficult with more competition. Further complicating this matter is that each time a math problem is solved, the next problem gets incrementally more difficult to solve. The Bitcoin network difficulty changes roughly every two weeks or 2,016 blocks. The number of Bitcoins that will ever be created is finite. That number happens to be 21,000,000. Once we hit that number there can never be another Bitcoin mined again. However, the block chain itself will continue to expand because it is used to verify each transaction or purchase.
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