Bitcoin is a so-called cryptocurrency, i.e., a virtual currency that uses cryptography (encryption) to secure transactions. It is intended to solve the problems that arise, for example, from today’s banking systems. Suppose we use the money to pay on the Internet today. In that case, we need an intermediary like a bank that guarantees that the money is available, and also when it is being used the receiver arrives.
This assumes that we trust the bank and means that all transactions are bundled at this point. However, this is also where the weak point lies: The bank is the only one that can ensure that payments are made and that no double bookings occur. If the bank falls victim to a hack, the entire system is at risk.
The blockchain is the fundamental building block that guarantees the security of the Bitcoin currency. It is a complete and chronological list of all transactions made in Bitcoin. New transfers are constantly added to the block list, with each transaction block containing a log of previous blocks. As a result, the blocks form a chain, hence the term blockchain. Since each block always includes references to earlier partnerships in the chain, it is tough for fraudsters to inject a bogus block containing little or no references to previous transactions onto the network.
The references are bundled into a block until the block reaches the intended size of 1 megabyte. However, the new block is not simply added to the chain; the network must first “notarize” it. To check it, the network members have to solve a guessing game that can only be solved with a lot of computing power.
Bitcoin Mining Requires A Lot Of Computing Power
But what is all this good for, and how do I get Bitcoins from it? Currently, members of the bitcoin network get a small fee as a reward if they guess the correct hash first. The cost is deducted from a bitcoin transfer and therefore does not change the total value of the bitcoins in circulation. In addition, there is a second reward: new bitcoins that are generated practically from nothing. These new bitcoins should provide an incentive to become part of the network and ensure that there are no shortages.
What Exactly Is Mining?
This whole process – earning bitcoins by using your computer to guess hashes – is called mining and requires enormous computing power. Initially, simple PCs were sufficient for mining, using the power of the processor and graphics card to generate hashes. However, as hashes have increased in difficulty, it takes more and more being able to be the first to guess a target hash. Modern graphics cards, in particular, have proven to be very effective, as they have a significantly higher hash performance than processors.
Given the comparatively high electricity prices in Europe and the shortage of graphics cards, however, it is now hardly profitable to mine on your own with your PC. Only PCs with multiple graphics cards that work around the clock or hardware (ASIC) especially developed for mining, can still profit.
Altcoins, Faucets, Cloud: Alternatives To Bitcoin Mining
Instead of trying to mine Bitcoin alone, it can be profitable to become part of what is known as a mining pool. In a mining pool, all participants contribute the power of their computers, which are then collectively used to solve blocks of transactions. If the collection solves a partnership, the proceeds are distributed to the participants according to the percentage of performance that you have contributed to the solution. Due to the bundled version, it can even be profitable in some instances to mine with your Personal Computer.
So-called faucets are a harmless but not very productive method of getting bitcoin. These are websites where you only have to enter your Bitcoin address and receive a small amount for it.
Anyone willing to invest money in bitcoins can try their luck with cloud mining. Here you pay for specific computing power, the yield of which then goes into your account. There are sites like Crypto Compare that can calculate exactly how much bitcoin you can get with given hash power.
Another possibility is to trade with other cryptocurrencies. There are numerous alternative coin currencies – called altcoins – which can sometimes increase in value quickly. Ethereum and Lite coin are widespread, but countless others, including the satirical currency Dogecoin. Anyone who invests in these currencies at the right time can potentially achieve a decent profit margin and then invest in Bitcoin.
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