Cryptocurrency Mining is among the most important things people can do with cryptocurrencies. Bitcoin miners are involved in providing a bookkeeping service in the blockchain. They form the single most important part of any cryptocurrency network.
The help in solving the cryptographic puzzles, which is required to confirm a transaction and record it in the blockchain by contributing their computing powers.
Interestingly, in cryptocurrency mining, the probability of solving the cryptographic puzzle is constantly decreasing and inversely related to the number of people trying to solve it. Hence, as a particular cryptocurrency gains more popularity, the more people go in to mine it, the more the difficult the process becomes.
Many people have made substantial fortunes from mining bitcoin and other cryptocurrencies. In the early years of Bitcoin’s existence, the probability of solving the puzzles correctly was higher and people made huge profits from mining using their computers.
Cryptocurrency Mining In Recent Years
However, the situation has changed recently, Bitcoin mining can only be profitable if one invests in a high-grade industrial mining hardware. Setting up a high-grade Bitcoin industrial mining hardware is very costly ranging from equipment procurement costs to electricity bills etc.
Notwithstanding, mining other cryptocurrencies such as Litcoins, Dogecoins, Feathercoins etc are said to be more cost-effective for beginners compared to Bitcoin mining. Currently, using a consumer-grade hardware, a Litecoin miner can make over $5 daily.
Cryptocurrency miners make their profits by solving the cryptographic puzzle. Accumulating more computing powers increases their probability of successfully solving the puzzles. Once a miner succeeds in solving the puzzle, they receive a reward plus a transaction fee.
As more and more people become interested in mining Bitcoin, the more difficult the process becomes and amount of coins received as a reward decreases. For example, in the early years of Bitcoin, miners received up to 50 Bitcoins for successfully mining a block. Now, the reward has decreased to 12.5 Bitcoin per block and will continue to decrease as miners increases.
This is so because the Bitcoin network is designed in a way that there can never exist more than 21 million Bitcoins in circulation. As at today, approximately 17.4 million Bitcoins have been mined and circulated. However, as rewards are going to become smaller and smaller, every single Bitcoin mined will become increasingly more and more valuable. All these factors make cryptocurrency mining extremely competitive and as such immensely benefits early adopters.