Since the birth of Bitcoin, Bitcoin mining has begun. If you are not familiar with the meaning of “mining”, it is the process of adding and verifying transactions on Bitcoin’s public ledger (called the blockchain). A node refers to any computer connected to the Bitcoin network, and they are dedicated to solving complex equations to add blocks. The solution to these computational mathematics problems is called a “proof of work” consensus algorithm.
First, these miners use their high-performance computers to verify transactions on the blockchain. In turn, they will be rewarded in two ways:
- the newly created BTC
- Ensuring that they keep the payment network safe and reliable.
The bitcoins created in this process are called “block rewards”. Depending on the year, the amount of BTC granted to these miners will vary.
Bitcoin halving: how it affects mining:
Initially (when Bitcoin was created in 2009), the block reward was 50 BTC. However, the mysterious Bitcoin “creator” Satoshi Nakamoto programmed the network to cut the reward in half every 210,000 blocks. This event is called “Bitcoin Halving”.
The average rate of blocks mined per hour is 6, which is roughly equivalent to Bitcoin halving approximately once every four years.
The first Bitcoin halving in history occurred in 2012. The 210,000th block rewarded miners with 50 BTC. However, block 210,001 paid 25 BTC to its miners. The second Bitcoin halving took place in 2016, where 420,001 blocks awarded miners 12.5 BTC instead of 420,000 for all 25 BTC blocks. The next halving should happen around May 2020, when the reward will be halved again to 6.25 BTC.
If you want a more accurate and real-time estimate of when the next Bitcoin halving will occur, you can use multiple trackers. This halving pattern will continue to happen until the reward is finally reduced to 0 (this will happen in 2140). When this finally happens, miners will have to start using transaction fees as an incentive to continue mining.
Satoshi Nakamoto programmed the Bitcoin halving into the network to slow down the distribution of Bitcoin, thereby effectively controlling inflation. According to the economic laws of supply and demand, if coins are created too fast (and if the supply of Bitcoin is unlimited, we know that is not the case), the asset will depreciate due to the number of coins in circulation.
What does this mean for Bitcoin mining?
With the Bitcoin halving, it may be shocking at first that the rewards are getting smaller and smaller. However, it must be noted that when the reward is higher (25-50 BTC), the value of Bitcoin is not enough to make people instantly become millionaires. When people started mining Bitcoin, miners already had the necessary equipment. In addition, the competition is not fierce because most miners use almost the same machines.
However, with the development of application-specific integrated circuit (ASIC) chips, the technological gap is getting bigger and bigger. Through these chips, mining capacity has been doubled, effectively eliminating the previous mining equipment.
These chips also increase the hash rate of Bitcoin (a measure of the computing power of miners), making the entire network healthier. Due to the larger technology gap, increased expenditures. In turn, individuals can no longer compete, especially when large Bitcoin mining centers begin to use powerful machines.
At this point, people began to question the profitability of Bitcoin mining. With the upcoming Bitcoin halving, large Bitcoin mining centers, and increased spending, is it still worth a try? The answer is: it’s up to you. The answer can be both “yes” and “no”. The only way to know is to try.
Factors to consider when mining Bitcoin :
Before delving into the world of Bitcoin mining, you should consider the following factors:
Mining can become complicated:
On the blockchain, transaction verification is measured in hashes per second. As designed, the network generates a certain number of coins every second. This means that the more active miners, the more difficult it is to mine. It has been carefully designed to ensure that the distribution of Bitcoin remains static.
Fierce competition :
As mentioned earlier, the development of ASIC mining machines has brought large mining companies into a competitive environment. As a result, individuals are forced to join mining pools (and distribute rewards) or get trampled by large mining companies.
Electricity is expensive:
Although the cost of electricity varies depending on where you mine, the high-performance computers used to solve computational mathematical problems usually consume a lot of energy. When deciding whether mining is worthwhile, be sure to consider power consumption.
As you can see, the answer to the question is not as simple as everyone thinks. In most cases, people who mine at home (as opposed to large mining companies) will find it difficult to profit from the cost of mining hardware and electricity consumption; if the innovation of ASIC miners reaches the point of diminishing returns, the situation may improve. If this innovation is combined with cheap and sustainable electricity, ordinary household miners may once again see the profitability of Bitcoin mining.
Although the profitability of Bitcoin mining may be questionable, it must be pointed out that mining is not the only way to profit from Bitcoin. Nowadays, due to the peer-to-peer Bitcoin market, through bank transfers, PayPal/Skrill, credit/debit cards, and even gift cards, there are actually hundreds of ways to obtain Bitcoin. Through these P2P markets, users can earn profits in a variety of ways-transactions, useless used payment methods for sales, and accept Bitcoin as payment for your business.
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