Mom, where do bitcoins come from? Bitcoin Mining Explained

“Mom, where do bitcoins come from?” You see, when a bright young Bitcoin catches the eye of an ambitious Bitcoin miner, and because they love each other so much…

Wait, it’s too hard to solve here. Besides, my whole point is to keep things simple. After all, bitcoins are made by solving complex mathematical problems. This is done by a powerful machine built to solve these math problems. This process is called mining. The people who own these machines to earn money mining Bitcoins are called miners. When a set of problems is solved, it is known as a block. Blocks are validated by other users and added to the block chain after validation. This chain continues to grow and a new block is added approximately every 10 minutes. This chain is truly a key book that will continue to grow and never end.

Very powerful mining machines consume a lot of power and increase the monthly utility costs of the miner. The reason it takes so much power is because it’s math genius. This requires the mining machine to perform complex cryptographic algorithms. After a math problem is solved by a machine, a coin block is born. Every time 210,000 blocks are created, the miner’s reward is halved. It will take 4 years to implement. So it’s kind of like the Bitcoin Olympics. Currently, the block reward is 12 bitcoins (on June 23, 2020, the reward will be only 6 coins). Those coins then go to the miner whose machine is the lucky lottery winner. There is a winner every 10 minutes. There are also many miners competing there. Said miner now has something of value. Make enough money and you pay the electricity bill and then some.

There is another way for me. This is called cloud mining. With this type of mining, you pay to use someone else’s network, which significantly reduces your earnings. The positive aspects of this method are that it does not require the use of electricity or even the purchase of a machine.

Sounds good to me. I want to start mining now. Is this a good idea and can I earn passive income on a regular basis? It may be. Hold tight for now and you can make that call later.

Let’s try to break it down.

Going back to the original way of making a machine, you need to start by buying a quality mining machine. This will set you back about $2,000. Here is a picture of a good machine (Antminer S9 from Bitmain) capable of generating a high hash rate of 14 TH/s. 1 TH/s is 1,000,000,000,000 hashes per second. This car does it 14 times. That’s a lot of hashing power. A hash is a very long number that the machine generates each time it tries to solve the algorithm. Again, to use my lottery analogy, all these machines are going away in hopes of being the next winner.

Then, with more competition, your chances of winning become increasingly difficult. What makes this matter even more difficult is that each time a math problem is solved, the next problem becomes more and more difficult to solve. The difficulty of the Bitcoin network changes approximately every two weeks or every 2016 blocks. The number of bitcoins that will ever be created is limited. This number is 21,000,000. Once we hit this number, no more Bitcoins can be mined. However, the blockchain itself will continue to expand as it is used to verify each transaction or purchase.

Remember the pseudonymous Satoshi Nakamoto I also wrote about? Did you know that today’s math problems are 70,000 times harder for machines to solve than when we mined the 1st Bitcoin in 2009?! It is estimated that the last coin will be produced in 2140, as the system halves every four years (210,000 blocks). 16,400,000 coins have already been mined (78%) and each coin will be mined at a lower rate. Yes, you read that right. Basically 80% was mined in the first 8 years and it will take more than 100 years to extract the last 20%. If any of my great, great, great grandchildren are reading this, I hope you are sitting pretty with our family’s bitcoins. We can all dream right!

Buying a mining machine or buying a mining cloud contract is risky. While there are some great success stories out there, be sure to research them thoroughly before deciding whether mining is right for you. For every person who makes money, there are many people who lose money.

Coin Market Cap is a great resource, by the way, a great place to see all the cryptocurrencies out there and their total coins and market cap. There you can see all 700 plus flying altcoins. Altcoin is another way of saying any cryptocurrency coin that is not Bitcoin. By now you probably know that Bitcoin is like the Rose Bowl, the granddaddy of them all! I would try to limit my focus and research to the top 10 for now. Not to say that one of the now almost worthless ones won’t have success stories. Simply finding one is like picking the right penny stock. It’s a safer bet to stick with established companies recognized by mainstream analysts. The same goes for the stock market you use to buy, sell and trade. That’s why I use Coinbase to make my trades because they are the most reliable, secure and convenient exchange. When it comes to adding altcoins, they also have the most thorough vetting process.

Summary of key points in this article:

-Bitcoins come from mining

-Mining is performed by powerful machines that solve complex mathematical problems. If you don’t want to buy a machine, you can also get contracts called cloud mining.

-The challenges get harder as the coins are mined and the production rate drops

-As of May 2017, a total of 72 bitcoins were mined every hour (12 every 10 minutes).

-On June 23, 2020, this will be halved again to only 6 generated every 10 minutes.

-Approximately 80% of Bitcoin’s limited supply of 21,000,000 coins has already been mined.

-Competition among miners and increasingly complex math problems make it difficult to turn to profit mining

– It is estimated that the last coin will be released in 2140