Mining for Bitcoins

If you’ve not heard of Bitcoin as of yet, it’s a decentralised, digital currency that can be used across the web as an alternative to traditional currency. We Use Coins made a useful video explaining the basics of Bitcoin.

Bitcoin mining is the process of verifying existing transactions. Those who mine a new block are rewarded with a number of coins for themselves. An added incentive is that the value of a bitcoins should, in theory, increase over time, meaning the rewards of mining will only grow.

For me the idea of generating currency has a old-world charm to it, even in the digital age, and has me interested.

The Mining Process

In order for mining to take place, mining software must generate a solution to a problem. The problem involves finding a unique number, which, when added it to a chain of transactions from the network, generates a hash with a certain number of leading zeros. This process is random, with no guarantee of a time for a solution. Generating a large number of hashes, as is required for this problem, is computationally intensive.

The two main ways to mine are to mine independently or in a pool. If you mine independently you reap all of the rewards. If you mine in a pool, you share the rewards with all of those contributing resources. The advantage of mining in a pool is that it is reported to offer a more steady reward, and it offers a greater chance of success for those with modest resources.

Mining requires software (free and open source) and suitable hardware. CPU mining was more commonly used in the early stages of Bitcoin, but is is no longer a vaible option with GPUs singificantly outperforming CPUs on hash generation.

One thing to consider as a miner is power consumption. A GPU, or several, running at full-capacity for long periods of time will consume a lot of power, which would need to amount to a cost lower than the rewards in order for the process to be profitable.

If you’re interested in finding out more about recommended hardware and software, We Use Coins have a useful mining guide.

Risks to Bitcoin

If you’re going to amass Bitcoins, you should be aware that there are some risks that the currency faces.

One major risk to Bitcoin would be a loss of confidence in users. Bitcoin is an apt platform for criminal activity in some respects. All transactions and users are anonymous, which makes for a good system of moving money around. With no charge on transactions, no central control and no authority observing the source or desitnation of the transactions, Bitcoin is certainly laden with benefits for criminals.

With this in mind, it wouldn’t be unreasonable to see the currency face legal issues in the future. It would be near impossible to completely shut down Bitcoin, but by outlawing Bitcoin in one or more major nations – retailers, traders and exchange bureaux of that nation would be unable to operate, which could deter users and cause a loss of confidence in the currency.

Is Mining Worthwhile?

Bitcoin has yet to establish itself firmly enough to become widely known, and future support for the currency is not guaranteed, but there is a growing number of places where you can spend your coins, a growing number of users trading the currency and a significant number of users mining.

If you have the hardware lying around, or you’re interested in setting up rigs to take on tasks such as this, Bitcoin mining could be something worth considering. If not, Bitcoin is still young, having been around for just over two years, and it’ll certainly be interesting to see what happens to Bitcoin and the mining process in the future.