The Basics Of Bitcoin Mining: 4 Things To Know

Nowadays, many individuals are into digital currencies or cryptocurrencies like Bitcoin. Some trade it while others mine it, hence the term ‘Bitcoin mining.’ This refers to the process of adding transaction records to the blockchain in a digital manner. The blockchain, meanwhile, is where every record of Bitcoin transaction is stored, and this ledger is distributed publicly. Since the ledger is available for everyone to see, every transaction is transparent, and cheating the system is impossible.

However, that guarantee isn't enough if you're planning to start mining Bitcoin. Here are several other things you need to know about it in order to find success with it in the long run:

Brief History Of Bitcoin Mining

Before the influx of Bitcoin miners, using personal computers was an excellent way to mine Bitcoin. But now, more computer processing power is needed due to the difficulty of mining—which involves solving algorithms—and the fact that its popularity has increased.

Thus, one may need to use gaming computers or ones with chips made explicitly for Bitcoin mining. In addition, the process often entails high electricity consumption.

Solving Electricity Consumption Issues With Renewable Energy

One of the problems related to Bitcoin mining is energy consumption. Some even say that it uses much of the electricity that the entire world consumes today.

That's why many enthusiasts have suggested that to best meet Bitcoin mining energy usage needs, the industry must take advantage of renewable energy. For instance, renewable hydro energy in Sichuan and Yunnan can be excellent sources of power. Miners are continually looking for ways to mine Bitcoin using alternative supplies of electricity so as to reduce emissions and Bitcoin mining’s environmental impact.

The Legality Of Bitcoin Mining

Another vital piece of information to know about Bitcoin mining is its legality. Since Bitcoin isn’t monitored or controlled by one central government, does it mean it's illegal?

The answer is that Bitcoin mining's legality, in general, is still unclear. Some countries don't have enacted laws regarding it, while others have governing rules about it.

For instance, the Financial Crimes Enforcement Network (FinCEN) considers such activity to be under governing laws since Bitcoin miners transmit money. In some countries like Israel, a corporate income tax is implemented since they consider Bitcoin mining a business. On the other hand, the United States and Canada have a friendly view of Bitcoin mining.

With that said, checking your country's regulations beforehand is the safest approach as each country's take on Bitcoin mining varies.

Different Methods Of Mining Bitcoin

Most importantly, you have to be aware of and understand the methods of Bitcoin mining. While it's done digitally, it's best to know how it’s carried out and what devices or rigs are used. That way, you can find the most suitable option according to your preferences and risk tolerance. Here are the four methods you can choose from:

1. ASIC Mining

An application-specific integrated circuit (ASIC) miner is a device specifically designed for Bitcoin mining. This means that crypto mining is the only task it can perform. While it may sound unappealing, that feature is the exact reason ASICs are popular for Bitcoin: they can produce high amounts of cryptos.

However, their incredible performance has made other people call for a ban on such machines. That's because other miners complain that they can't keep up with the earnings and hash speeds that sort of equipment provides. They say it's disadvantageous for miners who are only using CPUs or similar devices to mine Bitcoin.

2. GPU Mining

Another famous device for mining cryptos is a graphics processing unit (GPU). These rigs are known for their efficiency, and they're more affordable than ASICs since they use graphic cards in mining. One GPU has two to eight graphic cards in addition to its rig frame, cooling feature, motherboard, and processor. Thus, Bitcoin miners using the cloud utilize hundreds, if not thousands, of these devices.

3. CPU Mining

In this method, miners use ordinary processors. As mentioned, these devices were most popular back when Bitcoin mining was just starting in the early 2000s. Nowadays, fewer people turn to this method.

One reason for this is that it's extremely slow when it comes to mining. You may only have a small amount of revenue even after months of continuous activity. Thus, this is mostly used by individual or rookie miners who see Bitcoin mining as a side hustle and not an income-generating activity.

Moreover, you can start mining with this method since you'll only need a couple of programs and a computer. This makes it appealing, for starters. The catch is, your computer may overheat after several hours, especially if you're using a laptop.

4. Cloud Mining

Lastly, you could start your Bitcoin mining journey even without buying rigs or devices. Or, if you don't want to mine personally, you can still benefit from the activity with cloud mining.

This method is where you rent out the mining device of an individual or a company. Depending on the length of your contract, you may be allowed to mine Bitcoin for months or years.

Moreover, with cloud mining, you don't have to worry about maintenance and electricity costs. What’s more, you only have to wait for your earnings that'll be sent to your crypto wallet.

However, you need to be wary and find a reputable cloud mining service to avoid being scammed. Find ones that have built a name in the industry. These companies usually own extensive facilities and 'farms' since Bitcoin mining is their source of income.

By familiarizing yourself with the four methods above, you can assess whether it's better for you to own a rig and mine Bitcoin on your own. Or maybe you should rent out rigs if you don't have significant capital to buy such devices.

But generally, cloud and GPU mining are the most popular options. That’s because ASIC mining is still highly controversial, while CPU mining is slow. Regardless of your choice, you can start earning money with Bitcoin mining through any of the mentioned methods.

The Bottom Line

Whatever type of investment you go for, it's best to learn the ropes about it prior to diving in. With Bitcoin mining, understanding it allows you to become a better decision-maker, especially if you want to use it as a hedge against inflation. The information above will help you weigh if Bitcoin mining is a journey you should be taking or not, so take all the time you need to ponder on the matter.