Along with the introduction of Bitcoin and cryptocurrency in 2009, the act of mining has been integral to the system. As a method of keeping Proof-of-Work (PoW) blockchains, a popular mechanism, secure, ‘miners’ can utilize the computational resources at their disposal to compute hashes, thereby maintaining the security of the blockchain without the need for a central authority.
To reward participants who successfully generate valid hashes and mine a block, they are given cryptocurrencies, typically that associated with the blockchain. As of writing, the most popular cryptocurrency to mine is Bitcoin ($BTC), due to its value and dominance in the cryptocurrency market. While it may seem tempting for new users to begin mining in hopes of reaping huge cryptocurrency rewards (after all, block rewards are currently 12.5 BTC per block mined), there are much more factors for consideration.
Back in 2009 when Bitcoin ($BTC) was first created, practically anyone could mine profitably with their personal computers. Mining difficulty was low and rewards were even higher. However, a decade later, Bitcoin ($BTC) mining has developed into a robust industry with highly specialized equipment and efficient techniques. They utilize specific hardware – Application-Specific Integration Circuits (ASICs) – on a large scale with preferential bulk discounts on electricity bills, to minimise costs and maximise computational power.
With mining difficulty steadily increasing as weeks past, and block rewards halving roughly every 5 years, profit margins are being squeezed, so much so that the average person cannot be expected to mine Bitcoin ($BTC) profitably, after taking into account electricity and equipment costs. Even if one were to possess several ASICs, they’d still be tiny as compared to the entire mining community, and no match for the various companies built specifically for the cause.
As such, mining pools have been introduced, to allow individuals looking to mine cryptocurrencies an opportunity to reap its rewards in spite of the high barriers to entry. By combining their computational resources, members of a mining pool greatly increase their chances of successfully mining a block, and in turn, share its rewards. While many might be concerned about sharing the profits, it is helpful to picture it as such: as an individual, while rewards do not need to be shared, the chances of mining successfully is extremely low; but as a group, the mining pool substantially increases the chances of success, allowing individuals to reap some rewards while risking less.
Overall, the idea of mining pools has been widely accepted and successful, with many exchanges offering such products, such as BiKi with its mining pool. They often provide users with competitive rewards, benefitting the individual user significantly. As the industry continues to develop, we can only expect further technological advancements that allow for greater efficiencies and rewards.
Are you currently mining cryptocurrency/interested in doing so? Let us know!
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