Bitcoin mining is a process through which bitcoins are entered into circulation; also, it is a critical component of the maintenance of the blockchain. The process is very costly and sporadically rewarding. One can also buy it from exchanges like CoinDCX using fiat money.
Miners get paid for their work as auditors to verify the legitimacy of Bitcoin transactions, which helps prevent the "Double-spending" problem. A double-spending problem means that an owner illicitly spends the same bitcoin twice.
How to mine bitcoins?
A miner has to verify 1 MB worth of transactions, also known as a "block," which makes these miners eligible to be rewarded with several bitcoins. Note that not everyone who verifies the block gets paid; it just makes them qualified. To earn rewards, one must meet the two conditions:
- One has to verify 1MB worth of transactions, which is the effort one has to put.
- The tricky part is that one has to be the first miner to arrive at the correct answer or closest solution, also known as proof of work.
To do mining on their own, one must keep in mind the following steps:
- One must get application-specific integrated circuit (ASIC) miners and research its legalities for importing them in a specific geographical location. One can read the support guides published by Bitmain, MicroBT or any other ASIC manufacturer for support and reviews. The price for ASIC units may vary, as the basic Antminer S9 is about Rs 1.5 lakh.
- One should be aware of the power demanded by Bitcoin mining; it requires around 1500 watts of electricity/hour. On average, electricity rates in India tend to be about Rs 7 per kW.
- Besides noise, heat is also the byproduct that requires a reliable cooling system to avoid fire hazards. One should note to keep a fire extinguisher handy if they plan to do it at home.
- One might not generate enough power with the available power; thus, they can join the pool where they can contribute their energy and get back a part of the reward.
- The process of joining a pool is simple; one has to input the Stratum addresses of the pool in their mining software and connect it to the wallet to receive the rewards
- Sometimes Bitcoin ASICs break. Maintaining and repairing machines eventually becomes a consideration for every miner.
A pool tries to be the first miner to develop a hash (64 digit hexadecimal number), which is less than or equal to the target hash, which requires high computing power.
How much do Miners earn?
One should note that without miners, the Bitcoin community would exist and be usable but would never have additional bitcoins. Also, there will be a time estimated to be the year 2140, when all the bitcoins will be mined even though miners can continue to verify transactions and be paid in fees to keep the integrity of the Bitcoins network such as miners get voting powers to be used when changes are proposed in Bitcoin protocol. One must remember that the more hashing power a miner controls, the better odds they have to claim the reward.
As per the network, miners are paid in the Block Reward, which is the sum of Transaction Fees and Mining Subsidy
- Transaction fees: The first transactions included in any block are called the coinbase transactions used by miners to colled fees from transactions. Whenever Bitcoin is transferred, the sender pays fees decided by them, but the fee rise on busy days when people wish to send transactions simultaneously. Before being included in bitcoin, these transactions are kept in mempool, from where the miners pick the transactions with the highest fees.
- Mining subsidy: Mining subsidy is the Bitcoin miner receives as a reward. That amount decreases by 50% every 210,000 blocks that are mined or roughly every four years. These subsidy reduction intervals are commonly known as "halvings."
Halvings: When Bitcoin was first mined in 2009, one block would give you 50 BTC. Over the next couple of years, the reward halved each time. In November 2020, the price of Bitcoin was $17,900, which means that completing a block would earn you $111,875. Not a wrong incentive to solve that complex hash problem detailed above, it might seem. To keep track of the exact date when these halvings will occur, consult the Bitcoin Clock. Throughout Bitcoin's history, the price has tended to follow the reduction of new coins entering circulation, leading to a rise in the scarcity of Bitcoin.
Risks of Mining
Aside from having no return on their investment, buying mining equipment can also be a risky venture. Its risks are typically related to a regulatory issue or a financial risk. In addition, joining a mining pool can help minimize this risk. If you are thinking about starting a mining operation and living in an area that is not allowed, then it's best to reconsider. One should also research their country's regulations before investing in mining equipment.
Another potential risk from Bitcoin mining is the increasing energy usage. While microchip efficiency has increased significantly for ASIC chips, the growth of the network is outpacing technological progress. Consequently, there are concerns about the carbon footprint, which might have negative impacts on the environment.
Many believe that crypto-mining could benefit the country, such as Shetty said that these operations could bring in investment and employment, which will generate economic activity around it. But in India, the cost of electricity ranges from 7-11 cents per Kwh, which is comparatively higher than in Kazakhstan, where it is 4-5 cents/kWh. Thus, setting up mining pools may be expensive and tedious. But as per Shetty, using renewable sources like solar panels might make it cost-effective. According to an estimate by the Cambridge Bitcoin Electricity Consumption Index, Cryptocurrency mining consumes about 67.29 terawatt-hours a year.