As many people ask themselves, “Where do Bitcoins come from?” or “How Bitcoins are born?”. Bitcoins are mined out of the system and do not get printed out like the traditional money. A miner is just a person with a computer running a mining program.
The reason it is called mining is that: just like any other natural resource. There is an limited amount of Bitcoins.
- The maximum amount of Bitcoins that can be generated is 21 million. Which means that there is only 21 million Bitcoins that exist worldwide.
- Until today, over 12 million Bitcoins have been mined. Just like in the real world, you need to invest energy to extract these Bitcoins.
- It requires electrical energy to mine Bitcoins.
Miners got some specific computers for them. which needs to solve complex mathematical problems, and once it solves them new Bitcoins get generated and awarded to them.
Even though miners do not just generate new Bitcoins. They also use their computers to verify transactions and prevent fraud- by building firewalls. So more miners mean faster transaction verifications.
More miners = Reliable and more secure network.
When verifying a transaction, the miner gets a small fee out of that transaction for his work. So miners get paid twice.
Miners get paid for the following:
- Once for verifying the transactions.
- Once when they successfully generate new Bitcoins.
Sounds profitable? Well, not so fast
The profitability of mining depends on the current market value of the cryptocurrency being mined. As the market value of a cryptocurrency increases, so does the potential profitability of mining it. The man who invented Bitcoin is called “Satoshi Nakamoto.” Satoshi wanted the number of Bitcoins that were mined each time to remain constant, no matter how many miners came abroad.
That is why the difficulty of mining increases as more miners join the network. The amount of money one can make from crypto mining varies depending on several factors, such as:
- The cryptocurrency is being mined.
- The mining equipment used.
- The cost of electricity.
- The mining difficulty.
In 2009, you could mine, for example, 200 BTC with your personal computer at home. But In 2024 it will take you about 98 years to mine just 1 BTC.
In the early days of Bitcoin, it was possible to mine a significant amount of Bitcoin using just a regular computer. But today, mining Bitcoin requires specialized hardware, such as ASICs (Application-Specific Integrated Circuits), which can be pretty expensive. And that is why ASIC miners were invented. Application Specific Integrated Circuit, super powerful computers designed JUST for mining Bitcoins, but since so many have joined in the past few years. It is still almost impossible to mine alone, especially since it is also difficult to find/buy.
Overall
It is complicated to give a specific figure on how much money one can make from crypto mining, as it is highly dependent on a variety of factors. However, some estimates suggest that with the right equipment and low electricity costs. It is possible to earn several hundred to several thousand dollars per month from mining certain cryptocurrencies.
As the number of people started to increase more and more every day, they had to solve this obstacle by inventing mining pools. Which are a group of miners formed together to deal with the growing difficulty of Bitcoin mining. Each miner gets paid for their relative share of the work they have done.
Mining pools are groups of cryptocurrency miners. Who combine their computing power to increase their chances of earning rewards for validating transactions and creating new blocks on the blockchain. By pooling resources, miners can generate rewards more consistently and efficiently. Which is particularly essential as the difficulty of mining increases and it is divided among the members based on their contribution to the pool’s overall computing power. You can find more information and details about ASIC and mining pools. Here
So, that is how Bitcoins are born, through miners.
What are the risks of Bitcoins?
As with any investment or technology, there are various risks associated with Bitcoin. Crypto attacks refer to multiple malicious activities targeting cryptocurrencies and the blockchain technology that powers them. These attacks can have a significant impact on the security, integrity, and value of cryptocurrencies. Here are some of the famous risks that people tend to face to put into consideration:
- Volatility: Bitcoin is known for its volatility and can experience significant price fluctuations in a short period of time. This can result in substantial gains/losses for its investors.
- Regulation: Bitcoin is not yet fully regulated in many countries, and regulatory changes could impact the value of the currency. Which leads to money loss and not gain.
- Cyber security: Bitcoin, cryptocurrencies, crypto mining, etc…, are vulnerable to cyber-attacks (where people with high hacking information can easily hack them). There have been numerous high-profile hacks and thefts in the industry throughout the years.
- Adoption: The adoption of Bitcoin, cryptocurrencies, crypto mining, etc., is still limited, and they are not yet widely accepted as a means of payment by merchants and consumers.
- Energy consumption: Bitcoin mining requires a significant amount of energy. There are concerns about the environmental impact of this energy usage.
- Technical risks: Bitcoin relies on complex technical infrastructure. That can be subject to bugs, glitches, and other technical issues that could impact its value and functionality.
It’s essential to carefully consider these risks before investing in Bitcoin or any other cryptocurrency and take measures to protect themselves, such as using secure wallets, avoiding suspicious websites and emails, and staying informed about the latest security threats.
What is a 51% attack?
Another major risk is the 51% attack and which takes place when someone can obtain more than 50% of the hashing power. One possible consequence of that is what we call a 51% attack, also known as a “Majority Attack.” It is a potential attack on a blockchain network where a single entity or organization can control the majority of the hash rate potentially, causing a network disruption.
A blockchain is a distributed ledger technology that allows secure and transparent transactions without the need for intermediaries. It is essentially a digital ledger of transactions that is maintained by a network of computers. The data in a blockchain is stored in a series of blocks that are cryptographically linked to each other, creating an unalterable and tamper-proof record of all transactions
In such a scenario, the attacker would have enough mining power to intentionally exclude or modify the ordering of the transactions, and they could also reverse transactions they made while being in control, leading to a double spending problem.
A successful majority attack could also allow the attacker to prevent some or all transactions from being confirmed or to prevent miners from mining resulting in what is known as mining monopolies.
On the other hand, a majority attack would not allow the attacker to reverse transactions from the users nor to prevent transactions from being created and broadcasted to the network by changing: blocks reward creating coins out of thin air or stealing coins that never belonged to the attacker are also not possible.
How likely is a 51% attack?
Since a blockchain is maintained by a distributed network of nodes, all participants cooperate in the process of reaching a consensus. The bigger the network, the stronger the protection against attacks and data corruption. That is why Bitcoin is considered the most secure blockchain. Several early miners joined the Bitcoin network to contribute to its growth and security. With the rising price of Bitcoin as a currency, new miners entered the system aiming to compete for the block rewards, such a competitive scenario and one of the reasons why Bitcoin is secure.
Miners have no incentive to invest large amounts of resources if it is not acting honestly and striving to receive the block reward. Therefore, a 51% attack on Bitcoin is rather unlikely due to the magnitude of the network. Once a blockchain grows large enough. The likelihood of a single personal group obtaining enough computing power to overwhelm all the other participants rapidly drops to very low levels. Also changing previously confirmed blocks gets more and more difficult as the chain grows because the block is linked and it is only possible to change a certain block if all subsequently confirmed blocks are discarded. For the same reason, the more confirmations a block have, the higher the costs for altering or reverting transactions they are in.
Hence, a successful attack would probably only be able to modify the transactions of a few recent blocks for a short period of time, and even if a malicious entity is not motivated by profits and manages to successfully perform a 51% attack, the Bitcoin protocol would be quickly adapted as a response.
As the biggest blockchain network, Bitcoin is very resilient to attacks and is considered the most secure and reliable cryptocurrency.
