What Is Mining?
Bitcoin is a formidable asset class in 2023, which is reflected both in its price, which started at hundredths of a penny and went to tens of thousands of dollars — and its seemingly endless use cases. But where did it come from? And how?
Bitcoin was introduced in 2009 by a shadowy figure called Satoshi Nakamoto, who turned up at a programming forum, completely anonymous, and everything he had to show for himself was his genius. The Bitcoin Whitepaper, which eventually made him one of the wealthiest men in the world, detailed the production of Bitcoin using an algorithm so impossibly thought through that not only did it work out to make everyone involved ridiculously rich and stayed unhacked for decades, but it also managed to predict the future.
Learn more about What is Bitcoin
What is mining?
Satoshi introduced a mathematical model that gave power back to the people by allowing them to “print” their own money which only they would control, much like you can print things on a 3D printer. “Mining” your own money, as it was called, came with its own set of very stringent rules, but being able to pretty much print dollars on your laptop was such an exciting idea that eventually hundreds of millions of people got involved. And it was all made possible by mining.
How does it work?
Mining is a process of making the blockchain. “Miners” are people who installed the blockchain software using their PCs’ power and calculating capacities to verify new transactions on the Bitcoin network. To be more exact, if you want to send money using the Bitcoin network, you send a request, and on the other end, users run checks:
Do you have enough money in your account?
Are you trying to take the system for a ride?
Аnd so on.
The technical process is so complex that you’d ideally need a 3-year degree in Computer Science to understand it all:
The good news is, just like you don’t need a degree in rocket science to drive a car and intimately understand every part of what’s going on under the hood, you don’t need to understand blockchain mining in its entirety. You need to remember that you login into an exchange the same way you would log in to your email inbox and send a crypto transaction out to an address your recipient gave you (plus many more security precautions like 2FA and so on, but that’s a different story).
On the other end, many security professionals verify that your money is going where it needs to be going, that it’s the right amount, and that all is right with the world. Your transaction gets processed in a few minutes; money leaves the account and soon arrives at the recipient. Miners get paid for that. Blockchain is slowly taking over the world. Everyone is happy.
Why mining and not something else?
There are also other ways of producing coins, like the Proof Of Stake system offered by alternative systems like Ethereum. Hardcore fans believe systems not based on mining aren’t as secure and don’t give everyone a fair chance. There are a few questions about mining itself, which isn’t exactly as democratic as Satoshi envisioned it. Time to sign up for that degree! Anyway, mining, or POS or anything else - there are plenty of choes out there. Just make sure to do your research. A currency like Bitcoin that withstood the test of decades is yet to be discovered. Just saying.
What are mining farms?
Mining farms are mahoosive buildings with incredible equipment bought out by someone wealthy. Getting them together makes it very cost-effective to earn a lot of money at once. Now think about this for a second. Mining sucks up enormous amounts of electricity. So people would build absolutely glorious mining farms in countries like República de Chile, where electricity was free. Don’t the opportunities take your breath away?
A cryptocurrency mining farm in Norilsk, Russia © Andrey Rudakov/Bloomberg pic.twitter.com/gcl0KaNUza
— Adam Tooze (@adam_tooze) March 1, 2021
Can you mine using a mobile?
You can and you should. Since this is a very new industry though, your chances of being completely unprofitable, making a little money, or discovering that someone cleaned out your account completely are pretty much equal. We recommend doing colossal amounts of research before you trust new systems.
Pros of mining
- Impressive profits if you get the rules right and have a starting capital
Cons of mining
- Needs expensive equipment
- Expensive equipment gets obsolete and stops paying for itself before you know it
- People in charge of mining farms make the most money, leaving single users with few opportunities, which is decidedly undemocratic
Summary
Bitcoin (and crypto) mining is a stupendously impressive process and a great way to make money as long as you dyor and seriously think through your pros and cons. However, it’s far from being as profitable as it was, and comes with quite an antry barrier in the form of equipment required. Personal opinion: if you’re looking for ROI, you’d be far better off trying to spot impressive new coins like YFI that went from $3 to $40 000 in less than 2 months.
