In a world that runs on money, everybody is looking for ways to earn more quickly. From the barter system to exchanging of currency, the world advanced multi-folds. Cryptocurrency is the newest way of exchange. But what exactly is cryptocurrency? It is a digital asset and can act as a medium of exchange.
It is funny that most people don’t know the word cryptocurrency but know ‘Bitcoin’. Why is that? Why has the phrase Bitcoin become synonymous with cryptocurrency? The first cryptocurrency to be introduced in the year 2009 was Bitcoin. A person under the name Satoshi Nakamoto, whose real identity is still unknown, created Bitcoin. The market value of Bitcoin is highly volatile and is subject to constant fluctuation, which makes investing in Bitcoin a risky venture.
How Much Money Can You Make by Mining Bitcoin?
Before knowing how much you can earn through mining bitcoin, let us first understand what mining Bitcoin means. After you hear the word ‘mining’, the train of thoughts makes you think of dirt, hammers, and shovels. Luckily, mining for Bitcoin does not involve any of those things.
The transactions of all Bitcoin exchanges are kept secure via blockchain, which is a virtual public ledger to store and encrypt data. Bitcoin miners verify the transactions in a block of the bitcoin ledger, for which they are compensated by earning bitcoins for every block that they validate.
Transaction refers to the movement of Bitcoin. Miners record these transactions in ‘block’ and add them to the blockchain. They have to ensure that these transactions are accurate to avoid the issue of ‘double spending’. This issue arises because the spender can easily replicate a digital token and send it to a third party while still retaining the original.
You also have to arrive first at the correct answer to a complex mathematical problem. To solve a problem first, you must beat several miners who also use sophisticated computers to solve the same. The answer to this question is a 64 digit hexadecimal number. You only have to guess an answer that is less than or equal to the target solution.
This mathematical problem is known as ‘hash’, and hash rate refers to the computational power. The difficulty rate of these problems also varies. For example, when Bitcoin came into existence, the difficulty rate was 1. However, currently, it is greater than 16 trillion. Furthermore, this rate is only expected to increase as more and more miners enter the arena in the long run.
Mining Bitcoin not only rewards the miner with Bitcoin, but it is also the only way to add new Bitcoin into circulation. New bitcoin is generated only through mining.
The returns on mining for Bitcoin gets reduced by half every four years. For example, in 2009, mining one block would give you 50BTC. This reward was reduced by half in 2012 to provide you with 25BTC. In 2016, it was 12.5 BTC, and again in 2021, the compensation was reduced by half to give the current return, 6.25BTC. You can easily create a new account with bitcoin lifestyle website and start trading.
The founders of Bitcoin capped the limit for mining bitcoins as 21 million. As of November 2020, miners already mined close to 18 million Bitcoins. This set limit aims to bring in a system of control regarding the supply of cryptocurrency.
Miners get rewards and transaction fees for keeping the network secure. So when this limit of 21 million is achieved, the miners will still continue to earn transaction fees to verify the accuracy of transactions.
Bitcoin mining can be profitable for a few individuals who enter into the world of Bitcoin smartly. You will need specialised Bitcoin mining hardware to solve complex problems that are otherwise difficult to solve.
This hardware can cost a fortune but will ensure steady income without creating a fuss. However, because the difficulty rate of the problems keeps increasing, your hardware needs to be updated and highly sophisticated. It may be possible that the hardware you bought two years ago may not be capable of solving today’s problems.
Profitability also depends on the cost of electricity as this hardware runs on power and can consume gigantic amounts of electricity. You have to ensure that your system is efficient.
You could also join a mining pool wherein a group of people integrate their computing power and split mined Bitcoin among their members. Joining a mining pool will also save you from the enormous cost of running mining rigs. Carefully analyse the pool fees and the authenticity of the mining pool before you decide on joining one.
Cloud mining is yet another way to go through mining. You can earn bitcoin using rented cloud computing power without having to spend it on mining rigs. Cloud mining companies make considerable investments in mining rigs and sell subscriptions to users. So you are paying for spending time on someone else’s rig.
Your profit is the net amount that you get after deducting all costs from what you earn after mining Bitcoin. These costs include the cost of the rig, its electricity consumption, pool fee in case you joined a pool, subscription fee of cloud mining, etc.
It is wise to believe that “nothing great comes with a risk”, but it is foolish to not inform yourself about the risk that you’re taking. It can prove to be a fun and learning experience if you know what you are doing.
Although Bitcoin has proven profitable for a few individuals, it is a speculative means.
You must understand that it is tough to quantify the exact amount you can earn by mining Bitcoin. It is based on a number of varying factors that we have mentioned above.
Bitcoin and all other cryptocurrency are still growing. They have high development potential. Mining Bitcoin can be a double-edged sword. It could either change your life for good or lose all the money you invested in it. We hope our article about How Much Money Can You Make by Mining Bitcoin helped you decide about the same. Happy Trading!