Bitcoin mining has been around for years, but its concept has not been fully understood by some newbie investors. What is it and how is it making millionaires?
Bitcoin Mining is the process by which bitcoin transactions are confirmed and added to the public ledger, known as the block chain through which new bitcoins are released. The concept of mining got invented because it seemed pretty inefficient to have a central entity checking all bitcoin transactions when we can easily have computers do that for us instead.
So, you download software on your computer (usually in exchange for Bitcoins), set up a designated amount of processing power to be used in solving algorithms, receive rewards for those who verify blocks successfully, and get paid transaction fees for each block solved correctly. So basically, this is just plain awesome!
Bitcoin miners use high-powered computers to solve algorithms and at the same time, get paid a certain amount of Bitcoin. These people make money in two ways: first, by getting paid for solving the algorithm; second, by selling their mined bitcoins to other people who have a need for bitcoins.
What is the Difference Between Mining and Buying Bitcoin?
When you mine bitcoin, you are basically doing three things: verifying transactions carried out by others, adding new transactions into the ledger and releasing new currency.
However, when you buy bitcoin online or from your local dealer/currency exchanger, they are payment methods that can be used instantly unlike mining where there is some processing involved before one can get rewarded with bitcoins.
Where do you Get Your Mining Equipment?
You have two options: You can either get your own mining equipment or join a mining pool. Getting your very own hardware is good because you have full access over what happens to it and also, the rewards are higher should miners in the pool succeed in getting bitcoins.
However, if you do not want to go through all the technicalities of setting up your miners then joining a pool is better as you are free from hassle and only concentrate on earning bitcoins.
Mining Pools vs Solo Mining – Which is Better for Beginners?
Solo mining gives its participants bigger rewards on average than joining pools but at the same time there is an increased difficulty level that makes solo mining quite unattractive compared with other methods of bitcoin mining.
You should therefore join a pool if you are just starting out as it will help you get bitcoin at a faster rate than solo mining. Pools have their own terms and conditions for joining in order to avoid unscrupulous people from exploiting the system. However, most of them are quite simple such as paying a mining fee that is usually between one percent and two percent of your earnings.
When Should I Stop Mining?
If you want to get the maximum amount of bitcoins with minimum work then the best time for you to stop mining is when bitcoin has become mainstream which would mean that most people already have bitcoins and there is less demand for additional supply of this currency.
However, if your motive is not only getting rich but also gaining other benefits from bitcoin such as opening a business using bitcoin, it's best for you to continue mining until there are no more rewards left.
How Can Bitcoin Mining Help Me Get Rich?
Bitcoin mining can make one rich because unlike fiat currencies where central banks control supply and therefore increase or decrease money supply depending on inflation, bitcoins are limited.
Bitcoin mining is a process that gets rid of these restrictions by giving anyone with access to computers the opportunity to earn bitcoin regardless of where they are in the world.
How much Money Can One make Through Mining Bitcoins?
The amount of money one can make from bitcoin mining depends on three factors: type of machine used for mining, electricity costs and global demand for bitcoins. The best way to get started is by getting your machines at home which will ensure that you do not have to pay hefty amounts of electricity bills.
However, as soon as you have saved up enough cash it's better if you rent out cloud space offered by other miners because this practice increases your earning potentials by a huge margin.
How Does Bitcoin Mining Work?
Bitcoin mining is done using computers that run special programs known as miners that compete with each other to solve complex math puzzles. The miner who first gets to the solution broadcasts the outcome of the problem-solving process and is rewarded with bitcoins hence also contributing to processing transactions on this network.
What do Miners Get Paid for Solving these Algorithms?
Miners are paid transaction fees, along with some newly created bitcoins and all transactions which were successfully verified during their work. This means that miners have two ways of earning money: by solving complex mathematical problems or by verifying in advance, for a reward, that someone else's transaction will be approved later on when it is included in a block of transactions.
The Best Way to Start Bitcoin Mining?
If you are a beginner who wants to get rich from bitcoin mining then there is no better option available than getting your own hardware and running it at home. You will have full access over what happens to them, the rewards they generate and also over the money you earn form selling these rewards.
The following steps should be taken when starting:
Go online to search for reputable hardware manufacturers that sell bitcoin mining equipment with good reviews and order one.
What Type of Hardware Should I Get?
Although most people think that bitcoin mining requires highly specialized machines such as ASIC (Application Specific Integrated Circuit), this is not true because even graphics cards can do the job well so this should be your first choice.
Each bitcoin mining machine has a unique ID that you will use to track it and make sure its genuine before making any online payment as scammers have conned many people into buying fake bitcoin miners in the past. This means that when you choose this option then be prepared to face delays of up to 3 months for shipment.
If possible, always order from a vendor who accepts credit card payments so that if anything goes wrong with the transaction or delivery you can easily get your money back. It is also advisable to choose someone based in the US because they tend to ship overnight which means getting priority treatment if ever something goes wrong.
If there are no hardware vendors willing to accept your order using credit cards, then one's using of bitcoins are an option.
Bitcoin is a digital currency that has gained massive popularity in the past few years and many online stores now accept payments using this medium so you can try purchasing bitcoins from them instead of mining equipment.
One can also buy a limited number of coins form trading exchanges such as Coinbase and BlockFi but only after verifying your bank account details by taking very security measures on both ends because these companies have faced thefts in the past and their users are still waiting for compensation.
It's also advisable to choose one based outside US just like hardware vendors because there have been cases where they froze accounts and refused withdrawing money even for verified customers.
Note: Hardware prices tend to keep fluctuating on daily basis but if you decide to go with hardware then make sure you buy a machine that gives high hash rates which means it will take shorter time to solve complex puzzles and hence reward faster.
When the Equipment Arrives, What Next?
In order to start mining bitcoins or any other cryptocurrency, then you have to join a pool of miners who are working together so that they can share their rewards. This way your effort is multiplied several times and therefore the chances of earning more reward increases as well.
There are many pools available around the world but check the pool compatibility chart first before ordering any miner so that you can make sure that it works well with your intended pool. Find one with enough spare capacity as most pools have low hash rates and it's better to avoid them for now and go for a bigger pool later on when you are ready to pay for their subscription plan.
When choosing hardware, always keep an eye on its hash rate (MH/s) as compared to power consumption (Watts). The higher MH/s number means faster reward thus less time and more money while Watts mean lower energy bills but slower reward which means spending more time before earning something significant form your bitcoin mining efforts.
What Should Be My Next Move?
Once you have all the necessary equipment and set up, then it's time to get started.
Make sure that your computer has enough RAM (Minimum 2GB) and a good graphic card so that it can support multiple monitors for easy monitoring of hash rates because most bitcoin mining software makes use of this by displaying graphical charts on a monitor during mining.
The first step is to install your hardware and start mining by setting up a worker in your preferred pool but if there is any problem with installation or configuration then ask them for help via live chat or email because they will be able to guide you through the whole process in just minutes.
After everything is set up, its time to enjoy watching profits coming in form your wallet balance at the of the day in form of bitcoins earned because mining does not require any kind of maintenance and it runs 24/7 which means there is no limit on the number of coins you can earn every month.
Most pools payouts are made on a daily basis but some may need 1 week or more so be sure to check their payout conditions before joining in order to avoid issues later on.
There is no limit to bitcoin mining as long as you have access to internet and hardware with high hash rates. One can easily mine litecoins, dogecoins etc along with bitcoins by using different software that's already available for most operating systems including Windows, Mac OS X and Linux among others or they can even create their own pool if needed.
What's Next After Getting Rich?
Well, you can hold your coins in the hope that one day it will give up to 100x its current value or sell them for real cash. Only thing needed is an exchange account and any bitcoin wallet address can be used as a receiving address so staying anonymous is not a problem here either.
Some exchanges offer instant deposits while others may require 2-3 days but they are working on reducing this time gap to just 24 hours so there's no need to wait at all if you want money right away.
If you feel like it's hard to get started then there are many guides available online that can help in setting up your bitcoin wallet or tell how to download any trusted miner software, something that has been around longer than most of the others out there and one with no major security issues have appeared so far, which only means that using it is completely safe and highly recommended if you don't want to waste time trying new software.
So, now that you know everything needed to mine bitcoins using your PC or laptop then there is no need to wait when getting rich fast is just a few steps away.
Read the Entire Cryptocurrency Investing Series
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About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.