Anyone who has done some research into Bitcoin has at least heard about the concept of bitcoin mining. But what really is mining, what is its purpose, and what are some of the considerations that come into play when someone decides to become a Bitcoin miner?
The five elements of mining
Mining rigs are powerful computers equipped with professional mining chips. Over the past few years, these chips have become increasingly sophisticated: while capable of solving complex algorithmic problems faster, these chips have also become more energy efficient.
Many miners simply purchase mining rigs, but not everyone can afford this expensive technology. Therefore, a whole leasing business around mining rigs has come into the industry.
Miners are people (or companies) involved in mining. The income of the miners is closely related to the price of the coin they mine. Since 18 million Bitcoins have already been mined , it will become increasingly difficult to obtain Bitcoin in the future. This will push some less sophisticated miners out of the market, which affects the hashrate, making it less difficult to mine.
Here are some of the factors that impact the participation of miners:
- Bitcoin price
- Mining difficulty
Since the third Halvening of Bitcoin will come soon (expected in May, 2020), the enthusiasm of miners may continue to increase – the reason is that the price of Bitcoin is expected to rise around the time of the Halvening.
Furthermore, China recently removed the “Cryptocurrency Mining Industry” from the “Industries to be eliminated” list, which implies that the government may increasingly support the mining industry. The specific policies of a number of countries will be presented later on.
The computing power generated by the mining rigs is the so-called “hash rate”. The hash rate is affected by the number of active mining rigs, the demand and quality of the mining rigs, as well as the confidence of the miners.
The network hash rate has skyrocketed in the past few months, which may be related to the following events:
- Cheap electricity bills during the rainy season in southwestern China attracted more miners
- Bitcoin prices continued to rise in the first few months of the year
- The advent of new mining rigs led to a hash rate increase
The site where many mining rigs are located is known as a mining field. Where these fields are located in never random – rather, it is dependent on a number of important factors.
For example, the Sichuan province in China is where around 50% of the world’s mining fields are located due to its unique water resources.
Let’s take a look at the advantages of natural resources in other regions:
- China’s Inner Mongolia and other places: fossil fuel production areas, also relatively cheap electricity-generating resources.
- Russia: Natural gas and aluminum are widely distributed. At the same time, the local climate is cold and thus presents good mining conditions.
- Iceland: Rich in renewable resources, especially geo-thermal resources.
- Africa: Rich in solar and wind energy.
Since the mining rigs are expensive, the electricity cost is an important factor when selecting a location to mine. For instance, the lower electricity bills in China, Africa, and Russia attract many miners. However, the electricity supply in Africa is unstable with frequent power failures, which obviously makes Africa less suitable for mining.
The social situation around the mining fields also has a major impact on the mining field selection. For instance, the government of Egypt is strongly against cryptocurrency which makes it difficult for miners to operate. Similarly, law and order is not as solid in some countries in Africa which also presents certain risks.
Since many people want to participate in mining on a large scale but can’t afford the cost of one mining field, or in order to concentrate the resources, miners around the world tend to pool their mining rigs together for regular dividends. Miners join different mining pools for dividends and mining fees which is comparable to a salary. Different mining pools apply different calculation methods for the mining rewards, which are roughly divided into the following categories.
What do the governments think of mining?
Different countries have different regulatory policies for mining. The following chart summarizes the regulatory and policy conditions of several countries.
How much does it cost to mine one Bitcoin?
Mining can be started as soon as the equipment, field, and manpower are all in place. But how much does it cost to dig up one Bitcoin? The cost varies much across regions, and it not only depends on electricity bills and local policy conditions, but also on manpower, maintenance and installation costs.
Have a look at the the cost of mining one Bitcoin in some of the most important mining areas (source: Odaily, 23/04/2019)