What is Bitcoin Mining & How Does It Work?

Chances are you have heard of bitcoin already. It’s the cryptocurrency that is taking the financial world by storm, with many touting its potential to revolutionize the way money is viewed.

Bitcoin also frequently makes its way into the financial headlines for its unpredictable price swings. But where does bitcoin come from?

There are many cryptocurrencies in the market except Bitcoin but Bitcoin is so far the most famous one.

All the other cryptocurrencies except Bitcoin are know as Altcoins.

Read More: What Are Altcoins And How Do They Function?

Bitcoin is created through a process called “bitcoin mining”.

With investors continuing to jump onboard the cryptocurrency train and support bitcoin, understanding where and how this currency is created is vital. 

In this article, we will take a look at what bitcoin mining is, how it works, and how you can get started investing in it today.

What is Bitcoin Mining?

In a nutshell, bitcoin mining is the method through which new bitcoins are introduced into circulation.

This process involves algorithms that solve wildly complicated mathematical equations in order to verify transactions in bitcoin currency.

These math problems are solved on a decentralized computer network that serves as an international ledger, keeping track of each bitcoin transaction that occurs.

When computers that are part of this network successfully verify bitcoin transactions, new bitcoins are created.

So the computers in the network are the “miners” that process transactions in exchange for bitcoin payments. 

A successful bitcoin mining means that the miner receives a prefigured quantity of bitcoin.

Most people are discouraged from attempting to mine bitcoin because it can be a costly and extremely complicated endeavor. 

How does Bitcoin Mining Work? 

Bitcoin, like many other cryptocurrencies, runs off of blockchain technology.

A blockchain is like a long, digital record that is available to the public. It holds information about every transaction that takes place in that particular cryptocurrency. 

When a bunch of approved transactions is grouped together it forms a block and when groups are linked together it makes a digital chain.

Successful bitcoin mining adds another block, or group of approved transactions, to this chain. 

In order to do this successfully, bitcoin miners compete to solve complicated mathematical equations.

This process requires expensive equipment including high-tech computers and vast quantities of electricity.

The computer hardware required to mine for bitcoins can require an initial investment of up to $10,000.

And the amount of electricity consumed in this process can be harmful to the environment, and the profit margins of potential miners. 

How Profitable Is Bitcoin Mining?

Bitcoin mining can be extremely profitable. If a miner successfully adds a new block to the blockchain they will be rewarded with 6.25 bitcoins.

According to The Daily Universe:

“In January of this year, bitcoin was trading for roughly $43,000. So 6.25 bitcoins would be worth around $270,000.”

The whole endeavor does, however, require extremely high upfront costs. The necessary computer equipment and vast amounts of electricity will set miners back tens of thousands of dollars. 

One way to cut back on initial costs is to join a mining pool. A mining pool means miners share their resources and build their mining capability.

But it also means the rewards must be divvied up evenly as well, resulting in smaller payouts for each individual miner.

Good Read: Can You Retire on Bitcoin Alone?

What Are The Potential Risks Involved?

The price of bitcoin has yet to stabilize, with stock values skyrocketing and plummeting in short succession.

So bitcoin miners will have trouble understanding what their payments will be worth whenever they receive them.

The volatility of this popular cryptocurrency makes it difficult to predict where it will go in the coming years, so investing in bitcoin mining can be a high-risk prospect, particularly for investors who are fronting all their own mining startup costs. 

Since cryptocurrency is such a new field, there remain few regulations in place to protect miners.

One of the more radical aspects of cryptocurrencies, in general, is how they operate outside of any one government’s control.

Because this goes against most government financial regulatory bodies, there is a possibility that bitcoin mining could be outlawed.

In 2021, China did just that, in order to prevent speculative trading and financial risks.

How You Can Get Started Bitcoin Mining

The basic requirements to start mining Bitcoin are mining software, computer equipment, and a digital wallet. First off, mining software.

There are various mining software providers that you can download on a Windows or Mac computer. When that software is synced to a powerful enough computer you can use it to mine Bitcoin.

That brings us to the computer equipment. This is the priciest part of Bitcoin mining since you need a computer powerful enough to successfully mine for you.

This sophisticated hardware can cost $10,000 if not more. 

Another option that is less cost-prohibitive is to utilize the Bitcoin mining capabilities of an online platform.

The Wealthface app allows you to easily reap the rewards of Bitcoin mining without having to invest tens of thousands of dollars of capital upfront. 

Start investing and trading today with Wealthface

Finally, once you have your software and hardware sorted out, you will need a wallet where you can store any Bitcoins you earn.

This encrypted digital account can accept, exchange, transfer, and store your Bitcoin. And you can easily host and manage a Bitcoin wallet through Wealthface.

Excited to start investing in cryptocurrencies!

Learn more about The 13 Most Important Cryptocurrencies Other Than Bitcoin

Bottom Line

For independent Bitcoin miners, the benefits of Bitcoin mining may not always outweigh the costs.

Investing in cutting-edge computers that can mine for you is a costly endeavor, and with the price of Bitcoin bound to leap and plummet in an unpredictable way, it may not be worth the risk. 

The crypto industry is continuing to grow and mature, however, and now is a good time to invest as the industry expands. By relying on an automated app like Wealthface, you can gain the maximum returns with the least risk and hassle.