Knowing where bitcoins come from helps knowing how to invest

Bitcoins are the result of verifying transactions on the blockchain. The process of acquiring Bitcoins is called ‘mining’. This term, like many others that revolve around Bitcoin, add to the mystery of cryptocurrency but do little to explain its actual functioning. Bitcoins are more analogous to a reward than to scraping away at the dirt to find a rock in the ground. Essentially, when you mine, you are trading electricity for Bitcoins.

Bitcoins are not free to acquire through the blockchain. They cost electricity.

So how are Bitcoins a reward?

Bitcoins are a reward for sharing your computer power to process the blockchain’s transactions. At some point during the processing, the mathematical equation that processes the coins runs into what is called a ‘hash’. Beyond this, the math gets strangely complex and isn’t really germane to the scope of this article.

Once the equation comes across a hash, 12 Bitcoins are produced and given to the person whose computer was in use when the hash was discovered. The number of Bitcoins given was set at the beginning of Bitcoin, and other cryptocurrencies give out a different number as a reward. It’s simply based on what was decided at the launch of the coin.

Your computer will use more electricity when processing transactions. Today, however, your efforts will be fruitless if you try to mine using a home computer. It will take hundreds of years of processing before you will come across any coins.

Around 2013, special devices came onto the market that plugs into a wall outlet and mine Bitcoins. All they do is constantly process transactions. Even the best of these devices are having a hard time keeping up the increasing difficulty of mining Bitcoin.

The maximum number of Bitcoins will be 22 million. That’s all that can ever be mined. There are currently around 17 million Bitcoins in existence. In fact, full mining of all Bitcoins will probably be impossible. The amount of time it will take to mine a Bitcoin will exceed the life expectancy of the universe sometime before the blockchain gets to 22 million. Strange, but true. No one knows for sure when the blockchain will reach that point of impossibility. It’s the subject of much crypto-forum speculation.

What is known is that it has gotten very difficult and expensive to mine Bitcoin, hence the evolution of trading desks for cryptocurrencies.

Investors are now having water turbines engineered that will be placed in Iceland for the sole purpose of mining Bitcoins. Why does it take so much electricity to mine Bitcoin? The answer is simple. Each time the blockchain gives a reward, the mathematical equations that process the transactions and create the reward get harder to solve.

That’s why early on, from the launch off the crypto-forums until about 2012, it was possible to mine Bitcoins from a desktop PC. Not anymore. There are cryptocurrencies that can be mined today, but those are newer cryptos and come with higher risks. Not matter the crypto-coin, you are still using electricity when you are mining cryptos.

Leave a Reply

Your email address will not be published. Required fields are marked *