What is Bitcoin Mining?

 

Bitcoin mining is authenticating transactions by solving complex computational puzzles. This is all done via machinery. In order to reward miners new bitcoins are created and issued to the bitcoin mining companies.

The rewards are designed to become more and more difficult over time, while the reward is cut in half every four years. It is this rising complexity matched with this reduced reward which makes it difficult for the average person to get into bitcoin mining.

Fortunately, there are a dozen companies which specialize in mining, most of these are located in China, a few are scattered in North America and Europe, with Iceland and Norway being especially popular due to the low cost of power.

Decentralization

Bitcoins and other cryptocurrencies are decentralized meaning no one entity truly controls the flow and production of the currency. This is why anyone in the world can mine, but unfortunately due to the rising difficult of the mining process, only large server farms can do it profitably.

What’s important to remember when it comes to this decentralization is that an entrepreneur can take advantage of this by focusing on mining coins in locations that are cost-efficient to do so.

Iceland is especially popular since the cost of power is next to nothing due to geothermal power, the cold weather also serves to naturally cool off the server farms without needing to consume even more power.

This is why you will find most large server farms in cold climates. The secondary advantage of these locations is that the level of education is much higher than most parts of the world, and it is easier to source someone who is able to maintain, and add hardware to the server farms.

To take advantage of mining you either need to start your own server farm, or to partner with a cloud mining company which shares the profits with you, these are the companies we feature on our website.

Block Reward

This is the more technically difficult part to understand and it also clarifies why so few companies can successfully mine.

Every time blocks are mined, new bitcoins are released and this is termed the block reward. The problem for companies is that every 4 years (or approximately 210, 000 blocks) the reward is cut in half. This halving will continue until all 21 million bitcoins are mined.

This diminishing reward is half the problem of mining, the other problem is that the difficulty of mining doubles every 4 years as well. In order to match this difficult money needs to be invested into purchasing the newest hardware.

Fortunately, the price of bitcoin continues to increase exponentially which offsets these additional expenses and reduced rewards.

Mining Hardware

Theoretically anyone with any computer can attempt to mine coins, but the reality is this no longer works effectively. Unless you have specialized hardware you will never be able to keep up with server farms.

Specialize hardware is manufactured by companies with names such as as Bitfury or Hashfast. It’s an escalating arms race to produce the most efficient hardware.

The end result is you canĀ either fly to Iceland, or Norway to start your own server farm, or you can invest server farms which are constantly upgrading to the newest hardware.

Not only do these server farms enable you to invest in bitcoin mining, but you can also mine alternative cryptocurrencies such as Dash.

Summary

Unless you have a minimum budget of $500, 000, mining crypto-coins is no longer an efficient process without specialized tools that are functioning in a location that offers access to low-cost power.

Bitcoin mining is only going to get more difficult, but fortunately you an still capitalize on this opportunity by investing in cloud mining farms.

Please read our reviews of the best mining farms on our homepage.