By now you’ve probably heard a lot of hype about Bitcoin mining. Recently, there has been a great deal of news press and online publications about how this new currency is becoming a convenient way to spend money around the globe. Some claim to earn great wealth Bitcoin mining from their homes, but is it really as easy as they make it sound? How does Bitcoin mining work? Is it a magic way to create money? Producing Bitcoin is not as simple as it seems. I am writing this article, because I see that every day more brokers support Bitcoin trading. As a forex trader, it is good to know what Bitcoin is and what Bitcoin mining means.
Did you know that banks spend billions of dollars on infrastructure and equipment to process their transactions? This is why they charge fees. However, with Bitcoin mining, data is processed in blocks (more about that later) and with each block are rewards and fees. The rewards miners earn are far less than those of banks. Additionally, Bitcoin production requires very expensive software and therefore can’t be done on Desktops or portable computers.
As for regular money, the government will print it out and it will be distributed through the central bank. Bitcoin currency lacks a central issuing authority. New money that is released into its economy is mined through computer operations and can only be used via computer access. Because it can be produced by numerous individual miners, no one owns all of its wealth, and thus, can be distributed to consumers who have these types of accounts.
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What Is Bitcoin?
Bitcoin is a payment system that is becoming a 21st century alternative to brick and mortar banking. Initially, it was first introduced in 2008 by Satoshi Nakamoto and launched in 2009, but in the last few years has gained great popularity. Since it represents a digital, intangible form of money, you will never see or touch this currency, you just know it exists.
Providing you have a computer, you can make financial transactions anywhere in the world. You might say it is just like having a 100% free debit card which is not affiliated with a single banking chain or financial institution. Likewise, you can use Bitcoin to transfer money without time delays in bank processing or any types of transaction fees. The only downside to Bitcoin is that you’ll never be able to withdraw cash from your account.
Currently there are limitations as to where Bitcoins can be spent. Because this currency is still relatively new, few merchants accept it as a form of payment. As time goes on, more and more commodities are becoming available to Bitcoin holders. Companies that do accept them are Lamborghini and Virgin Galactics (a space tour service). Mel B. of the Spice Girls band accepts Bitcoin as payment for her music.
Bitcoin has no form of central authority or world control. Therefore, the value of the balance in your account will fluctuate according to its supply and demand. While it is beneficial for consumers, large banks don’t like the fact that they can’t manipulate this currency to suit their own best interests. Likewise, third-world countries can’t use Bitcoins to obtain large bank loans.
One major fear associated with the Bitcoin currency is that it can easily get hacked. This is not true. Just as we cannot hack into the Federal Reserves and control the national money supply, nobody can hack into this currency or steal money from Bitcoin holders.
As an intangible, new form of digital currency, Bitcoin is commonly traded worldwide. Bitcoin transactions are conducted in seconds, all without time delays or fees. However, the only way Bitcoins can be earned or spent is via computer. So, if you’re fluent online, this currency will be the ideal thing for you. Follow its progress and development and you can successfully invest in it too.
How Bitcoin Mining Can Be Explained?
But, how does mining create new money and verify transactions? Bitcoin mining was created in 2008 by Satoshi Nakamoto, a mathematician who worked with a queue of transactions over a 10 minute time period and constructed a math problem that takes that long to execute. Then, whatever computer successfully solved the problem would be rewarded with Bitcoins. As this problem was solved, all the transaction that occurred in that time period were verified. Hence, everyone who made trades with Bitcoins had their transactions recorded and the likelihood of errors was astronomical.
This process is what is known to be Bitcoin mining. Likewise, the group of transactions that serve as evidence of the work problems are called a block. Within each block, all ecommerce activity is recorded and new money is introduced into the economy. All transactions that are verified are placed into a ledger referred to as the blockchain. The very first block of course was created by Satoshi which he so calls the Genesis block. Every block created since the Genesis block links back to it in the blockchain, each having its own unique number to identify it. Bitcoin blocks are created every 10 minutes and can have any number of transactions permanently stored within them.
Bitcoin mining aims to serve three preliminary purposes:
- To process financial transactions
- To fairly distribute new wealth
- To secure the network
Equipment Required for Bitcoin Mining
There is a great deal of work and expense that goes into creating Bitcoins. As much as tens of thousands of dollars in electricity is used. Hardware is extremely expensive as systems as mining systems can cost in excess of a thousand dollars. Although some people are making a lot of money in Bitcoin mining, they’re also spending a lot to mine the Bitcoins. Hence, the costs of mining prohibits average wage earners from doing it.
Bitcoin mining is done strictly via the use of computers. However, only certain types of PCs have the adequate means of making it successful. A suitable computer contains one of the following units: GPU, field programmable gate array (FPGA), or application specific integrated circuit (ASIC). On the other hand, some types of machines are inappropriate as laptops or Desktops with either Intel graphics or an Nvidia cards. Older graphic or video cards inhibit the correct hash code from being processed. Computers with AMD graphics may work providing they were manufactured in late 2013, such as the R9 2xx Series.
Although CPUs were once used, CPU mining is now obsolete since the amount of power it requires is far greater than the quantity of hash rate it would produce. GPUs are commonly popular with Bitcoin mining, but are extremely power-hungry and become very hot during the operation. The best equipment is ASICs since they were specially made for mining and will create the most hashes per second.
The Future of Bitcoin Mining
Since its inception in 2008, Bitcoin mining has become a booming industry. As time goes on, more and more people are doing it, causing the block rates to go down. In December of 2012, the Bitcoin rate decreased from 50 units per block to 25. In 2017 it is expected to decrease from 25 to 12.5. Since costs of mining are rather high, only a small sector of the population is mining. This helps prevent Bitcoin’s value from becoming diluted and its network from spiraling out of control.
Apparently, current Bitcoin miners see mining as a great investment. Though this new currency is growing at an exponential rate, there still remains a great deal of uncertainty in its future.
Unless Bitcom is restructured, its bubble is bound to pop. Bitcoin is known to have a design flaw and fixing it will require the system to change the way it operates. Because users can facilitate transactions without a database each person will need to download a copy of the blockchain. Again, the blockchain is string of all blocks ever created since Bitcoin opened in 2009 up to the present.
In its first year or two, the size of the blockchain was negligible. In December of 2012 the blockchain was only 2 GB in size and September of 2013, it grew to 9 GB and 11 GB by the end of November of that year.
As Bitcoin becomes increasingly popular, the blockchain may grow so huge that in a few years, it will be too large to store on a client’s computer. This will prohibit consumers from opening their own accounts. Hence, it will need to be restructured to allow individuals to use the network without downloading the entire blockchain, enabling the network to access it for them instead.
As far as reconstructing Bitcoin it is a matter of when. Nobody knows how the system of the future will work, not even its developers. As of now, there is no agreed upon solution that will define Bitcoin in approaching years. Hence, miners should be treated their investment much like a stock bought and sold by a day trader. If Bitcoin should burst, Bitcoin mining will be history.
Bitcoin Mining Vs. Forex Trading
After reading the above explanations, do you prefer to be a Bitcoin miner or a forex trader? As a Bitcoin miner you have to buy the related hardware and software explained above and make them mine for you. You have to keep them up and running and pay your electricity bills. Besides, you have to have a proper place to run the computers. It is not cheap and easy. It is true that it is the computers that work for you, but it doesn’t mean that Bitcoin is easy money. The more people who mine, the lower the Bitcoin value goes. And, as it was explained above, the future of this business is unclear. The other thing is that as a Bitcoin miner, you are not learning any skills, and you just launch a business that may be stopped sooner or later.
What about forex or even stock trading?
A trader is someone who is able to analyze the markets and distinguish the best entry time. You can trade with your laptop, and you don’t have to spend a single cent on any hardware or software. If for some reason they close the forex trading doors to retail traders, you can use what you have learned to trade a lot of other things including stocks, commodities, CFDs, and… .
So, is it worth to spend time and money on Bitcoin mining? I don’t think so.