Bitcoin is the most popular and stable cryptocurrency in the market, which has attracted millions of investors. When people hear about Bitcoin investment, many people think about buying and selling coins. While that is part of it, there is more involved in the investment like mining.
Mining Bitcoins is generating new coins into the market and a way for the network to confirm new transactions. But to be a miner, people have to understand what goes into it and how it works.
How Bitcoin Mining Works
Bitcoin is a decentralized banking ledger or transaction record, called the blockchain, stored in different locations simultaneously. Unlike centralized physical banks, network contributors usually update the transaction record for Bitcoin.
The update happens when people add new data blocks to the chain containing information about Bitcoin transactions. Mining is done when miners add new transaction blocks to the chain.
To do that, the miners must calculate the right random numbers, which solve a complex equation generated by the blockchain system. After that, they are awarded Bitcoins by some rules written into the Bitcoin’s code and any transaction fees added to the blockchain ledger.
To complete those computations, miners must have complex and expensive mining rigs. The more their computing power, the easier the mining process becomes because they can make more guesses and have a higher chance of getting the solution.
Once miners find the answer, a group of blocks or transactions are added to the ledger, and the process begins again until another miner finds the solution.
What Are Mining Rigs?
Typical rigs usually have the same components as a PC; CPU, RAM, GPU, motherboard, power supply, and storage. However, as mining and the cryptocurrency market evolve, people have continued getting more specialized equipment and creating better setups to maximize processing power.
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In the past, miners used their computers, which gave them the processing capacity of only their computers. However, people have started using several high-end graphics cards together, which helps them solve several equations simultaneously.
This, in turn, requires them to get better cooling and more power, which makes it even more expensive to become a Bitcoin miner.
That has made other people opt for pre-configured mining hardware, which are microprocessor banks with cooling systems. Others team up with other miners, combine their processing capacity, and split their rewards.
Why Is Mining Important?
The main reason mining Bitcoin is important is that it is the only way to get new Bitcoins into the market. Once miners solve the equations, they get Bitcoins which they can sell or use to buy things, circulating them into the market.
Mining also helps verify transactions that have already taken place to prevent double-spending. That is a situation where Bitcoin holders illegally use Bitcoins several times. That is never a problem when using physical cash because once someone spends their money, they no longer have it.
However, in digital currency, a Bitcoin holder could copy their Bitcoin, send it to a vendor, and keep the original Bitcoin. When the miners solve the equation and get awarded new Bitcoins, the blockchain system automatically updates everyone on the network.
Traders who have Bitcoins in their wallets can apply for a Bitcoin credit card, which works just like traditional credit cards. They can also try credit cards from companies like SoFi, which according to their experts, earn the holders 2% cashback on their purchases, which come in the form of crypto.