Trading and managing cryptocurrency has become immensely popular, and getting started has never been more accessible. While there are many types of crypto, Bitcoin is the most sought-after and well-known currency. In addition to trading and purchasing bitcoin, people worldwide are learning how to mine for bitcoin.
Bitcoin mining is a crucial process that brings new currency units into circulation while simultaneously keeping transactions legitimate. Mining is a multistep operation and is a bit more complex than simply trading crypto through a portfolio.
However, learning the fundamentals of bitcoin mining is no herculean effort, and with some know-how, it is more straightforward than you might anticipate. If you are new to bitcoin mining and are ready to learn the basics, you’re in luck.
This helpful guide will cover some basic terminology related to bitcoin mining and examine the equipment people use to mine.
So What Is Bitcoin?
Bitcoin (and cryptocurrency in general) has taken the world by storm, attracting millions to start actively purchasing and trading amongst one another. People flock to the revolutionary currency for its reliability and lack of centralization. In other words, no intermediaries such as banks or governments are involved with the circulation of bitcoin.
People who own bitcoin can use it to purchase goods and services from any business that accepts it as a form of payment. Many business owners are beginning to accept crypto as it is trustworthy and continues to rise in value.
But more than anything, people trade and hold onto bitcoin as an investment resource. As bitcoin fluctuates in value, people choose how to manage their currency.
There are many ways to simplify trading bitcoin. However, mining for crypto is more involved and far more resource intensive.
What Is Bitcoin Mining?
A finite amount of bitcoin exists, and only a certain amount can be in circulation at once. To keep the Bitcoin Network balanced, the only way to bring new bitcoin into circulation is to mine for them.
The foundation of mining relies on the blockchain –– a specific branch of financial technology. Miners use special software and services to locate and extract data from blocks and are rewarded bitcoin each time they complete an entire mining cycle.
Before we examine the equipment used to mine bitcoin, let’s summarize how blockchain technology works.
Blockchain Technology Overview
Blocks are data structures related to cryptocurrency transactions, and full chains serve as publicly distributed ledgers. This “ledger” keeps transactions irrefutable and trustworthy –– each time you trade, purchase, or use bitcoin, that data is saved to a block and verified.
Because users can not modify the ledger, transactions are safe from the threat of hacking or falsification — this tight security is possible through cryptography and complex techniques.
Essentially, miners solve complex cryptographic puzzles to earn bitcoin. In doing so, new blocks are created and added to the chain.
These puzzles are related to components that make up a block, such as:
- Hashing: As it relates to crypto and bitcoin, miners run a value through the SHA-256 algorithm, a highly reliable and secure algorithm. Every block has a hash, which is somewhat like a block’s fingerprint –– these fixed values are essential to mining.
- Nonce: Users must cycle through fixed outputs to discover the correct “nonce” as quickly as possible. The nonce relates to a block’s hash and is your “proof of work.”
The science behind blockchain is vast, but its discovery is paramount. Blockchain will continue to play a massive role in cryptography and online transactions in the future.
Equipment Used for Bitcoin Mining
Getting involved with bitcoin mining means having the proper resources to do so. Because the entire process consists of solving intricate puzzles, you generally need a powerful machine.
Above all else, the most critical component for mining is the graphics processing unit (GPU). Many high-end GPUs are capable of mining, but some graphics cards have built-in restrictions to prevent miners from overrunning the GPU market.
Besides GPUs, some miners choose an application-specific integrated circuit (ASIC). These machines are generally only capable of one function, so they do not operate like multipurpose computers.
ASICs are reliable, and miners often opt to run multiple devices simultaneously to optimize their payouts. However, this option is not cheap either, and ASICs are not as well-known –– if anything, high-end ASIC devices run more expensive than building a mining PC.
Some choose to consult with bitcoin mining services as an alternative to doing all of the heavy lifting themselves. This option can be a great way to work with professionals with optimal advice and insights.