Investors’ wikipedia, Investopedia, describes cryptocurrency mining as “grueling, costly, and only occasionally rewarding.” For starters, let’s take a look at how this next-generation mining is done, quoting Investopedia:
To build a mining rig, you need a GPU (graphics processing unit) or an application-specific integrated circuit (ASIC). Miners are paid for their work as auditors. So in a sense, they are doing the job of verifying the legitimacy of Bitcoin transactions. The purpose of this contract is to ensure accuracy for Bitcoin users. (Designed by Satoshi Nakamoto, the founder of Bitcoin.)
By validating transactions, miners are helping to avoid the “double spending problem.” Double spending is when a bitcoin holder illegally spends the same bitcoin twice.
What is altcoin?
All cryptocurrencies other than Bitcoin are called altcoins. For example, cryptocurrencies such as Etherum, Ripple, and Dogecoin are referred to as altcoins. Bitcoin is the most used currency in the Deep Web.
$20 vodka sample
As far as physical currency is concerned, that’s not a problem: when you give someone a $20 bill to buy a bottle of vodka, you no longer have it, so there’s no danger in using the same $20 bill to buy a lottery ticket next door.
Let’s say you have a valid $20 bill and a counterfeit of the same $20. If you try to spend both the real money and the fake one, someone who bothers to look at the serial number of both coins will see that they are the same number.
This is exactly what a Bitcoin miner does – they check transactions to make sure users aren’t trying to illegally spend the same bitcoin twice.
What happens next?
After verifying 1 MB (megabytes) worth of bitcoin transactions, known as “blocks”, miners are eligible to be rewarded with some bitcoin. The 1MB limit was set by Satoshi Nakamoto and is currently a topic of discussion because some miners believe that the block size should be increased to accommodate more data. Note that verifying 1MB worth of transactions will only earn a coin miner bitcoin – not everyone who validates transactions gets paid.
What’s the worst that could happen to us?
Mining risks are divided into financial risks and legal risks. Bitcoin mining, and mining in general, is seen as a financial risk. Efforts to purchase hundreds or thousands of dollars worth of mining equipment may not result in revenue. However, this risk can be reduced by joining mining pools.
It may also be a good idea to research your country regulation and general sentiment towards cryptocurrency before investing in mining equipment. Currently, many different stock simulators can help those trying to get into this issue.
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