Bitcoin is an open-sourced, decentralised digital currency that has the advantage of being mined by anyone on the planet. Although Bitcoins are not considered a legal tender in India, you can easily mine them if you have the requisite computing power.
Do you want to learn more about Bitcoin mining?
Go through the following guide.
About Bitcoin mining
Bitcoin mining is the process of verifying new transactions to its public ledger system, thereby adding the new Bitcoin into circulation.
Just like you can mine precious metals like gold and silver, you can also mine Bitcoins by solving the mathematical puzzles provided by Bitcoin’s algorithm to produce new coins.
“Mining” is performed using sophisticated hardware which solves these mathematical problems, and the first computer to solve the problem receives the next block of Bitcoins, and the process begins again.
Miners receive incentives encouraging them to legitimise and monitor Bitcoin transactions, ensuring their validity.
Bitcoin blockchain uses Proof-of-Work, a cryptographic zero-knowledge proof that implies that a providing party proves to a verifier that a statement is true (without disclosing any additional information). It is the process by which the Bitcoin miners verify the transactions. Thus, in reality, miners get paid for their work as auditors.
Steps to mine Bitcoins
The following steps will guide you in the process of mining Bitcoins:
1. Setup mining hardware
For Bitcoins, a very powerful computer system is required. They are called ASICs or “Application Specific Integrated Circuits”. You can buy them from an online retailer or directly from the manufacturer.
Keep in mind the electricity costs of your area is also a huge factor. These machines take a lot of power to run; thus, selecting an area that offers low electricity rates is a good move to save your money on power bills.
If your investment budget is low, you may also consider getting a used ASIC from a reputable source.
Another thing to keep in mind is your internet connection. A dedicated high-speed connection and minimum latency from nearby mining pools are very important.
2. Create a Bitcoin wallet
To successfully validate a Bitcoin block, creating a Bitcoin wallet is necessary. It is a good practice to create a separate wallet for mining activities rather than use the same one you use for your Bitcoin investments. In addition, most Bitcoin miners set up a hard wallet for additional security.
3. Configure your equipment
After hardware and wallet setup, the next step is to get your mining software configured. This process requires technical knowledge, and you may need to do some research regarding this matter. If you want to link multiple rigs, matters can get a little tricky, though it is not rocket science.
If you do not have command line knowledge, it will help you if you get a mining device with a GUI (Graphic User Interface) that allows you to use a mouse to configure the hardware.
NiceHash Miner is a free Bitcoin mining software that you can use while starting out.
4. Join a mining pool
As the competition for mining is very high, you may want to join a mining pool. It is like a group of individual miners who combine their computing power and mine Bitcoins. In this process, you have to pay the pool operator, and the rewards are slightly lower; however, the rate at which you receive rewards is more consistent than individual mining.
5. Start mining
The last step is to download a local copy of the blockchain you want to mine, and your setup is ready to mine Bitcoins. Finally, you must check whether your rig is working properly from time to time.
Apart from this, there is nothing much to do from your end. The mining process will run 24/7.
Costs of Bitcoin mining
In general, Bitcoin mining is an expensive venture, and as the number of miners increases, so does the competition and the cost. ASIC miners can start from a price of $500 and range up to $15,000 for a professionally built rig. It will likely take you at least a year to recoup your initial investment.
Also, the time taken to mine one Bitcoin must be considered. The factors which come into play are:
- The current reward on the Bitcoin block
- The number of transactions and the fees paid on each of them
- Amount of mining equipment in the operation
If the money to mine a Bitcoin exceeds its costs, you are mining at a loss.
Important pointers regarding Bitcoin mining
- If you do not have or cannot afford mining equipment, for the time being, you can pay for cloud computing resources and start mining Bitcoins from the comfort of your home. This process is called cloud mining.
- If you have a low budget and cannot afford mining hardware, you can invest in a Bitcoin mining company. Riot Blockchain is a good example of a company that trades publicly in the stock market.
- You can mine Bitcoins using your phone; however, it needs to use an ASIC chip. Unfortunately, there are very few phones in the world which can do that.
Crypto mining in India
No government law deems crypto mining illegal in India as you would use own resources for crypto mining. However, the income you get from the sale of Bitcoins and all other cryptocurrencies is still taxable. Therefore, there is no need for a special permit to mine crypto in India, and thus by procuring the needed hardware you can get started right away.
Furthermore, according to the Minister of State for Finance Pankaj Chaudhary, the acquisition costs you need to mine Virtual Digital Assets (VDA) would not be treated as a cost of acquisition.
Experts believe Bitcoins will play a more significant role in the world economy as time progresses. As time goes by, mining will also become more competitive, and the rewards per block will also get reduced.
Make sure that you conduct thorough research and measure the results before making any investment. Furthermore, the crypto market is highly volatile and keeping a lookout on the latest news and apprehending trends is crucial.
