Exactly How Money Is Made Through Bitcoin Mining

bitcoin-2007912_640If you’ve been using bitcoins for any length of time, then it’s proven its value as currency for you; and now you might be curious about how to mine your own supply. You’ve realized that it’s being used the world over and becoming an increasingly valuable investment for miners.

However, at this point in time, the only real way to make a profit is by joining with a cloud mining provider. Moreover, it’s advisable to join a big player like Genesis Mining because it’s the largest cloud mining provider and all their bitcoin contracts have a lifetime value.

Understandably, the recommendation that you should join a cloud mining provider rather than do it on your own might  raise some questions. In order to fully understand why it’s not a good idea to do your own thing, it’s important to get an in-depth understanding of the process.

Should You Mine Your Own Bitcoins?

The reason you should not mine your own bitcoins is not because you’re not smart enough or because there is some law against cranking them out at home. The reason why you shouldn’t do it is simply because it’s not a good way to make money, and the reason you won’t make much money is not because of competition or some economic regulations but because of the process of mining itself.

Here’s an explanation of the process:

The reasons why bitcoins are valuable are because they are the result of complex calculations. Making them incurs energy and computer hardware overheads. Moreover, over time bitcoins become increasingly harder to mine due to increasing production costs. A coin made today will be harder to make than a coin you made yesterday, and a coin you plan to make tomorrow will require more raw processing computer power than the coin you made today.

In the beginning, when bitcoins were first being made, all you needed was a few extra computers around the house to get to work as a miner. However, over time, more bitcoins entered into circulation and it now takes much longer to crank out bitcoins with any reasonable amount of computer power. In fact, you can’t even use the type of computers available at computer stores anymore. You need to buy a custom built computer designed for bitcoin mining. This machine will have application specific semiconductor chips specially designed to process bitcoin mining algorithms.

Moreover, even if you decide to invest in this type of customized computer for bitcoin mining, you will only enjoy short-term profits—because as more bitcoins are made in the world, the more processing power you will need.

Buying a customized machine is not a solution to making money with bitcoins because:

  1. You will need increasingly more processing power.
  2. You will begin to use an increasingly higher rate of electrical power.
  3. You will begin to pay more for each new generation of customized bitcoin mining machines.

Why Is Mining Designed To Become Increasingly Harder?

You might be puzzled why there is a built-in constraint when it comes to mining bitcoins. The way it works is: the more coins bitcoin miners make, the more computer power they will need to make future bitcoins. This limitation is necessary to keep value high because it works as an anti-inflationary measure.

When you think about it, it all makes perfect sense. If bitcoins become progressively harder to make, the more supply will slow down over time. This means that as the amount of time and electrical and processing power increases, the fewer the number of miners available to churn out new coins.The value of each coin will increase in the future because the value will be tied to the cost of production. Mathematically, the net selling price of a bitcoin has to be subtracted from the potential cost to produce.

In order to make this idea of increasing value over time less abstract, let’s take a look at a May 11, 2017 news brief by Stan Higgins on the CoinDesk Bitcoin Price Index: “Bitcoin’s price rose above $1,800 this morning, setting a new all-time high, according to data from the CoinDesk Bitcoin Price Index (BPI). Average prices reached as high as $1,839.23, BPI data shows, after beginning the session at $1,732.13. Prices are currently at an average of around $1,824 and up nearly 4% for the session so far.”

This was breaking news at the time because it was the first time the BPI broke the $1,700 barrier. What makes this number even more impressive in that on May 4th, 2017, the coin was celebrated for rising about $1,400, an all-time high.

By all means, jump right in and become a miner, just realize that the Bitcoin world is past the point where early adopters could make big money due to low production costs. Your best shot at success is to work with an established mining organization.

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