Mom, Where Do Bitcoins Come From? Bitcoin Mining is explained

“Mommy, where do Bitcoins come from?” Well, you see, if a shiny young Bitcoin catches the eyes of an ambitious miner, and because they love each other so much …

Wait, it’s obviously very difficult to solve here. Besides, my whole goal is to make things simple. However, Bitcoins are created by solving complex mathematical problems. This is done by a powerful machine built to solve these mathematical problems. This process is called mining. The people who own these machines to make money mining Bitcoins are called miners. When a set of problems is solved it is known as a block. Blocks are verified by other users and once they are verified, they are added to the so-called block chain. This chain continues to grow with a new block being added to it almost every 10 minutes. This chain is just a master ledger that will continue to grow and never end.

Extremely powerful mining machines zap a lot of electricity and raise the miner’s monthly utility bill. The reason it requires so much power is the mastery of the mathematics involved. It requires the mining machine to create complex cryptographic algorithms. If a math problem is solved by the machine, a block of coins will be born. Every time 210,000 blocks are made, the miner’s reward is halved. It takes 4 years to accomplish this. So it’s like a Bitcoin Olympics. Currently the block reward is 12 Bitcoins (on June 23, 2020 the reward is only 6 coins). Those coins go to the miner whose machine was the lucky one to win the lottery at the time. There is a winner every 10 minutes. There are also a lot of miners competing there as well. The said miner now has something of value. Mining enough coins and you will pay your electricity bill and then the rest.

There is another way for me. This is called cloud mining. With this type of mining you pay to use someone else’s network and that can cut your profit. The positives of this method are that it does not require using your electricity or even buying a machine.

Nice to hear from you. I want to start mining now. Is this a good idea and can I generate passive income on a regular basis? Probably. Hold on tight for now and you can call that then.

Let’s try to break it down.

Going back to the original way of mining the machine, you need to start buying a quality mining machine. That would set you back about $ 2,000. Here is a picture of a good machine (Antminer S9 from Bitmain) capable of generating a high hash rate of 14 TH/s. 1 TH/s is 1,000,000,000,000 hashes per second. This machine can do 14 times that. That’s a lot of hashing power. A hash is simply a long number generated by the machine each time the algorithm tries to solve it. Again, to use my lottery comparison, all of these machines are out there hoping to be the next winner.

Then, your chances of winning are even harder with a lot of competition. What further complicates this matter is that each time a mathematical problem is solved, the next problem becomes more difficult to solve. The difficulty of the Bitcoin network changes almost every two weeks or 2,016 blocks. The number of Bitcoins that can be made is endless. That number happens to be 21,000,000. Once we hit that number there will be no more Bitcoin mines again. However, the block chain itself will continue to expand as it is used to verify every transaction or purchase.

Remember the pseudonymous Satoshi Nakamoto I wrote too? Did you know that math problems are now more than 70,000 times more difficult to solve on machines than before when he mined the 1st Bitcoin in 2009 ?! The estimate is that the last coin will be mined in 2140 because the system comes every four years (210,000 blocks). There are already 16,400,000 coins mined (78%) and every coin from here on out will be mined at a slower rate. Yes, you read that right. Basically 80% is mined in the first 8 years and it will take over 100 years to mine the last 20%. If any of my great, famous, grandchildren are reading this I hope you are sitting pretty with the Bitcoins in our family that are now worth 220,000 per Bitcoin. We can all dream right!

Buying a machine for mining or buying a cloud mining contract is risky. While there are some good success stories out there, be sure to check them out carefully before deciding if mining is right for you. For every person who makes money, there are many people who lose money.

By the way, a great place to see all the cryptocurrencies out there and their overall coins and market cap, the Coin Market Cap is a great resource. You can find all 700 plus fly-by-night altcoins there. An altcoin is just one way to say any cryptocurrency coin is not Bitcoin. By now you probably know that Bitcoin is like the Rose Bowl, the Granddaddy of them all! I will definitely try to limit my focus and research to the top 10 right now. Not that there aren’t success stories from one of the almost worthless today. It’s just that finding one is like choosing the right penny stock. Keeping established companies recognized by leading analysts is a much safer game. So is the exchange you use to buy, sell, and sell. That’s why I use Coinbase to do my trades because they are the most reliable, secure, and fast exchange. They also have the most complete vetting process when it comes to adding altcoins.

Here is a recap of the key points from this article:

-Bitcoins are made from mining

-Mining is done by powerful machines that can solve complex mathematical problems. You can also buy contracts called cloud mining if you don’t want to buy a machine.

-Problems get worse as coins are mined and the production rate slows down

-In May 2017, there were only 72 Bitcoins being mined per hour (12 every 10 minutes)

-On June 23, 2020, it will be reduced again to only 6 performed every 10 minutes

-Almost 80% of Bitcoin’s finite number of 21,000,000 coins has already been recovered

-Competition between miners and more complex mathematical problems make it difficult to make a profitable mining

-The last coin was estimated to be mine at 2140