Tech Peak » A Complete Guide to Bitcoin Mining: Working, Pros and Cons

A Complete Guide to Bitcoin Mining: Working, Pros and Cons

by Sophia
A Complete Guide to Bitcoin Mining: Working, Pros and Cons

Bitcoins are longer an alien concept today and they are being used in every purchase possible; from buying pizza to buying real estate. In general, we all know that bitcoins are created through the process of mining, but what is Bitcoin mining and how does it work? What are the pros and cons of bitcoin mining? Therefore, today this blog will put light on what is bit coin mining and the pros and cons of bitcoin mining.

What is Bitcoin Mining?

Bitcoin mining is explained as a process of confirming bitcoin transactions and recording them on a ledger. Termed as the most vital and important procedure in the Bitcoin network; it ensures the system’s safety and security, authentic and just operational framework and, a steady circulation of new bitcoins in the network.

As simple as it sounds, the process of bitcoin mining is performed by Miners and here is how the bitcoin mining works.

Bitcoin Mining

How does the Bitcoin mining work?

Miners use their hardware and set up their configurations accordingly to verify bitcoin transactions. Every ten minutes, verified and checked transactions are bundled up into a single 1MB size block. Afterwards, the Bitcoin blockchain provides all the computer networks to solve a complex cryptographic puzzle that allows them to add a new block to the bitcoin blockchain each time. The first computer network that solves the puzzle and adds a new block to the blockchain, is rewarded with bitcoins.

Bitcoin miners enjoyed potential rewards for solving these puzzles but today, the prizes have been decreased. For instance in 2020, bitcoin miners got only 10 bitcoins for solving a puzzle whereas previously, they used to get 50 bitcoins as a reward.

2021 will see more unpredictable challenges in the cryptocurrency world also and therefore, the mining system will evolve accordingly. Analysts foresee the evolving of rewards as transforming into some transaction fees instead of bitcoins, but that is yet to come.

The following are the pros and cons of bitcoin mining to further understand its working.

Pros of Bitcoin Mining

1. An alternative choice for money making

The first and a major pro of bitcoin mining is that you can make money out of it. If you have the right equipment and have got the right coins, then bitcoin mining is a potential way of earning significant amount of money.

2. Profitable

It is confusing to think how bitcoin mining is profitable but here is how; at the start of December 2018, bitcoin mining’s difficulty and complexity dropped to a low of 15%. This stands as a second largest drop in Bitcoin’s history after the 18% in 2011. The drop appeared because of the significant population of the miners left the mining procedure. By doing so, the hash power became lesser and that made bitcoins seamlessly adjust to the blockchain, thereby, reducing the difficulty in solving new block puzzles. Due to this, the overall mining process has become a lot more profitable and that stands as a strong pro of bitcoin mining.

3. Fame of Cloud Mining

As explained above, miners need specific hardware to solve cryptographic puzzles but cloud mining saves them from spending money on expensive computer components in this regard. Cloud mining is the process of hiring the hardware in remote data centers. For this purpose, there are cloud mining providers, among which the most popular are; Genesis Mining, Hashnest, Hashflare and Hashing24.

The procedure to enter cloud mining is relatively simple. It requires the miners to make an account and choose their hash rate. After paying the subscription fees, they have to wait for the bitcoins to start rolling in and once they do, the process begins.

Therefore the advent of cloud mining in this regard surely makes a strong pro of bitcoin mining today.

4. Aiding in Crypto’s Growth

Mining just does not help the individuals but it contributes to the growth of cryptocurrency’s world. It is by their problem-solving skills and commitment that Bitcoin network has grown and continues to grow by leaps and bounds. Therefore, the biggest pro of bitcoin mining is surely its contribution towards the overall success and growth of the Crypto world.

Cons of Bitcoin Mining

1. Complexity

A cryptographic puzzle is a potentially complex problem to solve and therefore, complexity of bitcoin mining remains its number 1 disadvantage. A least simplified process of bitcoin mining will include

  • Getting a bitcoin wallet
  • Getting a mining software
  • Membership in a mining pool and an account with a crypto exchange.
  • A customized mining rig(computer)
  • A GPU chip
  • Cooling Equipment

Getting the above mentioned steps done in a smooth manner is not an easy task and bitcoin miners always go through the hassle of getting each step done with attention to detail to ensure a smooth a problem-solving of the cryptographic puzzles.

2. High Electricity costs

Electricity costs of performing the bitcoin mining process are exceedingly high and this stands as a strong con of bitcoin mining. The costs of the electricity to perform bitcoin mining processes stand in billions and therefore, it is definitely not in the good lists of financial institutions and ecologists who strongly condemn the process of bitcoin mining.

3. Hardware Costs

The equipment used for bitcoin mining also does not come in cheap and that is another strong con of bitcoin mining process. The customized kit includes different supporting materials along with a computer which is necessary to perform mining. Therefore, apart from the electricity costs, there is also a large amount of mining-centric hardware and software that you will have to pay for.

4. Scams

Just like everywhere, the internet is also abundant with scams and the mining domain is no different from the remaining world of the web. Scams can be encountered easily if the miners opt for cloud mining as bogus companies are always ready to get hold of your subscription fees and coins. Therefore always consult with authentic and well-reputed companies in this regard. Scams are definitely a powerful con of bitcoin mining that one should be careful about.

5. Risk of Losing Money

Although the world of cryptocurrency thrives on taking risks but in this regard, the risk is higher. With bitcoin mining, a miner puts more money at stake in the form of hardware, electricity, and cooling equipment’s costs than getting an equivalent return in tokens. This very high risk of losing money was the reason why, a large number of miners left the mining process and that made it more profitable in turn.

Nonetheless the risk of losing money stands high and this point is the final yet a major con of bitcoin mining.

Analysts say that Bitcoin mining will get better in 2021 with new breakthroughs but until then, decide carefully and invest wisely.

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