Bitcoin mining is a process where new bitcoins are made and entered into circulation. However, the term is also used to describe the validation of cryptocurrency transactions on the blockchain network and their addition to a distributed ledger. On the blockchain network, groups of approved transactions form a block which is then joined together to create a chain. To add each new block to the chain, Bitcoin miners compete to solve complex mathematical equations using computer hardware known as application-specific integrated circuits (ASICs).
The Bitcoin mining process
The most expensive of these circuits can cost up to $10,000, so it is important for miners to recoup their costs. To that end, a miner who is successful in adding a new block will receive 6.25 bitcoins as a reward – equivalent to around $300,000 using December 2021 prices. Note that the reward reduces by 50% every four years or so during events referred to as “halvings”.
To get started, the miner needs access to a digital wallet and mining software that is connected to ASIC hardware.
Why is Bitcoin mining bad for the environment?
Solving complex mathematical problems requires enormous amounts of computational power. The more computational power a miner possesses, the more likely they are to solve the calculation and earn the reward.
This results in a metaphorical arms race where each miner endeavors to purchase the computer with the best hash rate, which is a metric used to measure how fast a computer can work on Bitcoin mining. These devices require more electricity to run, with a collective network of them consuming vast amounts of energy.
In the United States, some energy providers are only meeting increased demand by burning fossil fuels such as coal. In fact, states with ailing coal industries such as Montana, Kentucky, and New York are seeking to profit from the crypto trend by encouraging Bitcoin mining companies to invest in operations there.
Is Bitcoin mining profitable?
While the figures touted earlier suggest Bitcoin mining to be a profitable endeavor, this only tells part of the story. The process is profitable under certain circumstances, but this is impacted by the cost of electricity and mining equipment.
Miners in countries where electricity is expensive may find mining unsustainable. Conversely, miners with access to cheaper electricity often reside in third-world countries where the cost of mining equipment is prohibitive.
Profit potential is also impacted by:
Competition from other miners, which is only set to increase.
The halving process, which reduces miner rewards by 50% every four years.
Key takeaways:
Bitcoin mining is a process where new bitcoins are made and entered into circulation. The process also describes the validation of cryptocurrency transactions on the blockchain network and their addition to a distributed ledger.
To get started, a Bitcoin miner needs a digital wallet and mining software that is connected to sophisticated computer hardware that can solve mathematical problems. The device with superior computational power has the best chance of mining Bitcoin.
Bitcoin mining is bad for the environment because it has a large carbon footprint. Annual electricity consumption is comparable to countries with populations in the tens of millions and electronic waste is also a concern. Bitcoin mining has also caused renewed interest in fossil fuel burning as suppliers seek to meet the increased demand for energy.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
