SHORT SIP OF BACKGROUND.
Bitcoin was created by a person (or group) who went by Satoshi Nakamoto.
The true identity of this person is yet to be discovered. As the story goes, Satoshi is credited with creating the first bitcoin and disappearing, leaving behind a legacy that has continued to evolve and expand.
WHAT IS MINING?
Mining is the process of validating transactions on the Bitcoin network. This involves verifying the transaction, sealing it, and adding it to the blockchain, which provides a permanent record of the transaction that cannot be reversed.
At first, I associated mining with the physical act of extracting coins and bringing them to the market, similar to California’s Gold Rush in 1848. However, Bitcoin mining is a different process that involves using computers to validate transactions and earn new Bitcoins as a reward.
Although initially confusing, using the term “mining” in the digital or tech world –now makes sense to me because those who validate transactions are not only adding a block to the network but are also incentivized with cryptocurrency rewards.
This process contributes to the creation of the blockchain itself through the computing power required to validate transactions.
As a result, miners and their resources are both contributing to the security of the network and being rewarded for their efforts.
WHY DO WE NEED IT?
Since the Bitcoin network is decentralized and does not rely on a central authority, such as a government or financial institution, miners play a crucial role in validating and adding new transactions (blocks) to the network.
This process is essential for maintaining the security and integrity of the Bitcoin network. This eliminates “double spending,” which impedes fraud. Just think of paper money, especially when there was a switch from gold to paper money.
To prevent fraud from occurring, cashiers were required to verify big bills to avoid being deceived.
Similarly, double spending – which involves using the same amount of Bitcoin for two individuals to receive cash from – is prevented in the Bitcoin network, effectively removing the possibility of fraud.
MORE ABOUT MINING.
Before starting bitcoin mining, it is important to check for any local or country restrictions in your area.
Assuming it is allowed, keep in mind that specialized equipment is needed to become a Bitcoin miner, such as high-end graphics processing units (GPUs) or specialized mining chips (ASICs), which can cost over $10,000. Due to the high cost and the progression of bitcoin mining from its early days, it is generally not feasible for individuals to enter the mining business compared to corporations.
WHAT ARE THE THREE COMMON RISKS?
Mining can be a risky venture, with several factors to consider. While these three risks are common, there are many others to take into account:
- Resources – smaller individual miners may find it challenging to compete with larger, more institutionalized miners, who have greater resources at their disposal, including more powerful equipment and more affordable electricity. Therefore, expenses can quickly outweigh profits.
- Loss of profit – because miners compete with each other to solve complex mathematical problems, speed and efficiency are essential. Those who fall behind may lose out on potential rewards, particularly if their equipment is outdated or not adequately maintained.
- Taxes – individual miners may face substantial tax liabilities, which can significantly affect their profitability compared to institutions with more resources to allocate toward taxes.
It is crucial for anyone considering mining to weigh these and all other risks carefully before investing time and resources into this endeavor.
THE EFFECTS ON THE MOTHER EARTH.
Bitcoin mining requires significant electricity, which can harm mother earth.
For this reason, it is important to become more efficient in the mining process and reduce the strain on our planet’s resources, especially given the current climate changes.
As a society, we need to take collective action to ensure the sustainable growth of Bitcoin without depleting our planet’s resources.
Doing so can protect our planet and ensure its continued blossoming for future generations.
I’ll leave you with this statement from the “The White House.”
“As of August 2022, published estimates of the total global electricity usage for crypto-assets are between 120 and 240 billion kilowatt-hours per year, a range that exceeds the total annual electricity usage of many individual countries, such as Argentina or Australia.”
Climate and Energy Implications of Crypto-Assets in the United States
Disclosure:
This blog post is for informational purposes only and does not constitute financial advice. The author of this blog is not a financial advisor or investment professional. The information provided in this blog is based on the author’s personal experience and research and may not be applicable to all readers. Please conduct your own research and consult with a financial advisor before making any investment decisions. The author may have a financial interest in Bitcoin or related products mentioned in this blog.
