Here’s How Crypto Mining Works

[us_separator size=”custom” height=”32px”]

In 2017, Bitcoin brought worldwide attention to the cryptocurrency market, as it soared from a modest $1,000 USD per Bitcoin, to almost $20,000 USD by the end of the year. Before then, cryptocurrencies were rarely talked about, except in the online circles which followed their growth. Since then, they have become a household idea, talked about everywhere from the office, to the dinner table.

However, most of the talk still surrounds the question, “Is cryptocurrency a bubble? Will the bottom fall out and it all disappear?”  

Let’s look at the financial facts of cryptocurrency’s most prominent coin, Bitcoin.

There have been three major bull-runs during Bitcoin’s historic run.

    • One from $5.00 to $200, for a 40X increase.
    • One from $70 to $1,100, for a 15X increase.
    • One from $1,100 to $20,000, for an 18X increase.

And every single time a run was over and the market adjusting, Bitcoin was pronounced dead. What happened? It would go on to have a bigger and stronger run than ever before.

There are even some major investors who, right now, are predicting the next run to hit $700,000 and replace gold.

We at JV Driver believe those who don’t take advantage of this emerging new industry will wish they had the foresight to invest in it.

Okay, let’s say you’re convinced. You’re interested in Bitcoin and other cryptocurrencies, so what’s the next step? Do you purchase Bitcoins directly, as an investment, or do you invest in mining?

We’ll break that down, but first, let’s answer the question:

Cryptocurrency mining — what is it and how does it work?

There are a few ways to acquire a cryptocurrency:

  • You can accept them for goods and services.
  • You can buy them online at sites like Bitit, Coinbase, PayBis, Cubits, or exchanges.
  • You can purchase them from various ATMs wherever you’re located.
  • You can find someone with coins, who wishes to trade them for traditional currency.
  • You could participate in a mining pool.
  • You could build your own mining rig and solo mine them.

For the purposes of this article, and as the title of it suggest, we’ll be focusing on mining cryptocoins.

The process of mining a new coin is something more akin to a raffle draw, than anything else. Your mining rig spends computational power looking for solutions to certain mathematical problems, and is awarded a “block” of coins whenever it’s the first computer to succeed.  

The solving of these mathematical problems serves as validation and security of encrypted online transactions, for controlling the amount of coins on the market, and for introducing new coins.

For example, the reward for solving a Bitcoin, which is mined every 10 minutes, is 25 Bitcoins. In the first four years of its inception, 10,499,889.80231183 Bitcoins were created. Every four years after this, the available amount will half, until a total of 20,999,839.77085749 are mined.

Finally, the difficulty of mining Bitcoins is calculated every 2016 blocks, and is based upon the time it took to generate the previous 2016 blocks, aiming to stay around the 10-minute mark.

Cryptocurrencies: to mine, or to buy?

Valery Vavilov says it depends on the location (and Canada is a very, very good location), but bitcoin mining is profitable down to a price of USD $2,500 – $3,000 per Bitcoin, and at the time of writing this, BTC sits at over $9,000.

Another article, by Vikram Arun, which goes into the nitty gritty of the calculations, states the cost of mining a Bitcoin is somewhere around $1,800 – $2,800 USD, so anything over that would be profitable.

And as we stated earlier, the price of Bitcoin seems to have nowhere to go but up.

So is it profitable? It is. Especially if you live in Canada.

[us_separator size=”custom” height=”32px”]