Bitcoin’s 10th birthday is coming up on November 9th; can it be that long? The latest and greatest money concept, the idea of cryptocurrency, brings with it the idea of money without the need of banks, “virtual” notes with digitized serial numbers to prevent forgery… and, a perceived new way to become rich. Cryptocurrency and bitcoin mining are the new buzzwords of the financial world.
How Bitcoin is “Minted”
Traditional money is produced on coin, or paper, according to the will of the government backing it. Uncle Sam, through the combined efforts of the US Treasury to print money and the Federal Reserve Bank to value it by setting interest rates, establishes how many dollars we have in circulation and how much each dollar is worth. Bitcoin is produced in a very different way. It is decentralized: it is not managed by a particular country. Bitcoins are “discovered” in the bitcoin program created for them. The program possesses a protocol in which the creator of bitcoin (an anonymous individual that goes by the moniker Satoshi Nakamoto) established a limited 21 million bitcoins that are available for discovery. This establishes the element of scarcity, which is necessary to give it value.
Bitcoins can be “discovered” by individuals like you and me. So, like there is a limited number of ounces of gold in the ground to dig up, there is a limited number of bitcoin rewards to win. An individual can collect bitcoins as a result of solving problems in the bitcoin universe that lead to rewards. Just like grabbing at the cherries in the Super Mario game environment, an individual can play the game to win. Receiving the reward of newly accessed bitcoins comes from the service of finding solutions to problems, that’s all.
It may come as no surprise that the process of findnig new bitcoins is called “mining.” And, as of the writing of this article, the price of a bitcoin is at $6,724.12 per bitcoin. Certainly, mining one bitcoin is equivalent to finding 5.6 ounces of gold in the dirt. Not a bad payload for a day’s work, if you can get it.
Mining bitcoins: How can I do it?
Of course, everyone wants to know how to make money, and bitcoin is the newest, technologically coolest, form of money. So the natural next questions are, How can I “mine” bitcoins? and Is it novel enough that I can have an advantage to make bitcoin money easily? and, of course, the most important question of all, What’s the catch?
How can I “mine” bitcoins?
If math and computer science are your thing, then mining bitcoins might prove to be a fascinating venture for you, and maybe profitable.
Mining bitcoins involves solving a mathematical puzzle. But, before you can solve the puzzle, you need the right tools.
Step 1: Get a bitcoin miner – it needs to be energy-efficient, because efficiency counts. A preferred miner is an ASIC (Application Specific Integrated Circuit). It is preferred to use an ASIC over using your own desktop or laptop computer for mining because it has increased hashing power. It’s like a little, powerful data center dedicated to solving bitcoin puzzles. The point is, you want the highest hash rate for the least amount of energy expended. Because things can get hot, and that’s not cool. Check out this bitcoin mining hobbyist to see his solution to bitcoin miner cooling.
Step 2: Download the bitcoin software – there are choices to make here as well, and will depend on what miner you get.
Step 3: Create for yourself a bitcoin wallet – any bitcoins you win will go here. The process will not work until you have a wallet in place.
Can I make bitcoin money easily?
According to StackExchange, the odds of unearthing a bitcoin as a solo miner has roughly the same odds as winning the lottery. You can up your odds a bit by pooling your resources, but you must understand that, in order to put together an operation that will generate any reasonable profit, you will need to make a very large investment, in cash or credit.
What’s the catch?
There are several catches to consider:
Catch 1: Competition. You have some serious competitors out there, with major mining operations and with access to energy that is cheaper than here in the states. Check out this bitcoin mining operation in China and know that this is what your bitcoin mining hobby will be up against.
Catch 2: The question of stability. The anonymous creator of bitcoin has taken into consideration several levels of validation that protect “proof of work” and prevent criminals from attacking mining operations. Now that bitcoin has developed, over the last 10 years, safe and legal practices to legitimize it, it is certainly emerging as a new monetary concept that might be the cornerstone of international financial markets of the future. Yet cryptocurrency is by no means proven out, and there is inherent risk. So, mine at your own risk.
Catch 3: The question of regulation. No matter how you slice it, bitcoin is founded on a game being played, where the value of it is based on virtual components. If this contrivance turns out to be a game that is worthy of standardization, then regulation and enforcement of cryptocurrency will have to follow, and right now both of these remain in flux.
There are plenty of resources online that can help you navigate the details of bitcoin mining, if you are inclined to give it a whirl. However, for those who would like to familiarize themselves with bitcoin, or add it to their retirement portfolio, you can simply invest in bitcoin as you can any other currency. If it keeps doing well, as it certainly has been doing well by going from worthless to over $6,000 per bitcoin in less than 10 years, you may find that this profits you better than mining ever could.