There are many ways of making money on the Internet. One of the more unconventional ways is Bitcoin mining.
Bitcoin has become a huge success, even if the value has dropped from the peak. Bitcoin is a distributed digital currency, which has a number of interesting features. One of them is the way how new bitcoins are created. There is no central authority that decides how many bitcoins to create and how to distribute them. Instead miners use special software to solve mathematical problems and are rewarded with bitcoins for their efforts. The number of bitcoins is limited, the supply is limited to 21,000,000 bitcoins. Or more exactly, the algorithm used guarantees that the number of bitcoins will not exceed 21,000,000.
The mathematics behind how bitcoins are created is quite complex but in order to mine bitcoins, you don’t need to understand how it works. All you need to do is to download the software for mining and install it on a computer.
Bitcoins are created each time a miner discovers a new block. The rate of block creation is approximately constant over time, 6 new blocks per hour. The number of Bitcoins generated per block is set to decrease geometrically, with a 50% reduction every four years.
Some people like to say that Bitcoin mining is a perfect market. Anyone can start mining right away. New entrants do not have to ask for permission or adhere to a set of rules or regulations before they enter the mining market. This has increased the competition quite a lot and decreased the profit margins.
The Bitcoin mining mechanism rewarded early adopters for supporting the network. In early days, it was relatively easy to find new block and get rewarded with bitcoins. But with the success of Bitcoin, some people have started to use specialized equipment. This has made it impossible to get rewarded with bitcoins if you are using standard PCs, no matter how fast CPUs are used.
As mentioned earlier, the Bitcoin mining algorithm is designed to maintain a block production rate of a new block about every 10 minutes. As more people begin to mine with more powerful tools, the difficulty is increased so that it takes longer for a new block to be generated. Another thing to aware of is that the reward for each block produced is halved every 210,000 blocks. Although this is supposed to happen for the first time in 2016 or 2017.
In the early days it was possible to use a standard PC for mining. But soon some people discovered that a relatively cheap graphics card could be used to speed up the mining. Graphics Processing Units, known as GPUs, can be programmed to do bitcoin mining, something which they can do much faster than a normal CPU in a standard PC. GPUs quickly rendering CPU mining uneconomical. But the story quickly moved on.
Next came the FPGA, Field-Programmable Gate Array. FPGAs are chips built of logic blocks that can easily be programmed and interconnected to perform a particular task. They are more efficient at bitcoin mining than GPUs but also more expensive. The ASIC, Application-Specific Integrated Circuit, has made both GPUs and FPGAs mining unprofitable. ASICs are chips built for a specific purpose, in this case for Bitcoin mining. Since everything is done in hardware, ASICs are much faster than the earlier solutions.
In the early days of Bitcoin, there were reasonable chances of making some money by mining bitcoins, even with standard PCs. But that opportunity disappeared quickly, faster hardware and more competition made it tougher to create new bitcoins. Nowadays, Bitcoin mining does not make sense unless you are convinced that you have some kind of advantage over the competition, for example significantly cheaper electricity.