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## Mommy, Where Do Bitcoins Come From? Bitcoin Mining Explained

“Mom, where do Bitcoins come from?” Well, you see, when a bright young Bitcoin catches the eye of an ambitious miner, and because they like each other a lot…

Wait, that’s obviously too hard to solve here. Also, my goal is to keep things simple. Anyway, Bitcoins are created by solving complex mathematical problems. This is done by a powerful machine which is designed to solve these mathematical problems. This process is called mining. People who own these machines to earn money by mining Bitcoins are called miners. When a batch of problems is solved, it becomes a block. Blocks are verified by other users and once verified they are added to what is called the blockchain. This chain continues to grow with a new block being added to it approximately every 10 minutes. This channel is really just one big book that will keep growing and never end.

The high-powered mining machines zap a lot of energy and drive up the miner’s monthly electricity bill. The reason it takes so much power is the genius math involved. This requires the mining machine to run complex cryptographic algorithms. Once a math problem is solved by the machine, a block of coins is created. Every time 210,000 blocks have been created, the miner’s reward is halved. It takes 4 years to achieve this. So it’s a bit like a Bitcoin Olympics. Currently, the block reward is 12 Bitcoins (on June 23, 2020 the reward will only be 6 coins). These coins go to the miner whose machine was the lucky winner of the lottery at the time. There is a winner every 10 minutes. There are also a lot of competing miners there too. Said miner now has something of value. Mine enough coins and you pay your electricity bill and more.

There is also another way to mine. This is called cloud mining. With this type of mining, you are paying to use someone else’s network and this significantly reduces your profits. The good things about this method are that it doesn’t require you to use your electricity or even buy a machine.

Sounds good to me. I want to start mining now. Is this a good idea and can I regularly generate passive income? Maybe. Hold on tight for now and you can make that call later.

Let’s try to break this down.

Going back to the original method of mining, you need to start by buying a quality mining machine. It would cost you around $2,000. Here is a photo of a good machine (Bitmain’s Antminer S9) capable of creating a high hash rate of 14 TH/s. 1 TH/s is 1,000,000,000,000 hashes per second. This machine does 14 times more. That’s a lot of hash power. A hash is just a very long number that the machine creates each time it tries to solve the algorithm. Again, to use my lottery analogy, all of these machines are out there chopping in hopes of being the next winner.

Then your chances of winning get harder and harder with more competition. To further complicate this issue, each time a math problem is solved, the next problem gets harder and harder to solve. The Bitcoin network difficulty changes approximately every two weeks or 2,016 blocks. The number of Bitcoins that will ever be created is finite. This number happens to be 21,000,000. Once we reach this number, there can never be another bitcoin mined. However, the blockchain itself will continue to grow as it is used to verify every transaction or purchase.

Do you remember that pseudonym of Satoshi Nakamoto that I also mentioned? Did you know that today’s math problems are over 70,000 times harder for machines to solve than they were when we mined the 1st Bitcoin in 2009?! The estimate is that the last coin will be mined in 2140 because the system halves every four years (210,000 blocks). There have already been 16,400,000 coins mined (78%) and every coin from now on will be mined at a much slower rate. Yes, you read that right. Basically 80% has been mined in the first 8 years and it will take well over 100 years to mine the remaining 20%. If any of my great-great-great-grandchildren are reading this, I hope you are sitting well with our family’s Bitcoins, now valued at 220,000 per Bitcoin. We can all dream well!

Buying a machine for mining or buying a mining cloud contract is risky. While there are some great success stories out there, be sure to research them thoroughly before deciding if mining is right for you. For every person who makes money, there are many people who lose money.

By the way, a great place to see all cryptocurrencies and their total coins and market cap, Coin Market Cap is a great resource. You can see the over 700 fly-by-night altcoins there. An altcoin is just another way of saying any cryptocurrency coin that isn’t bitcoin. You probably know by now that Bitcoin is like the Rose Bowl, the granddaddy of them all! I would really try to limit my focus and research to the top 10 for now. Not that there won’t be success stories from one of the most worthless now. It’s just that finding one is like choosing the right penny stock. Sticking with established companies that are trusted by mainstream analysts is a much safer game. The same goes for the exchange you use to buy, sell, and trade. That’s why I use Coinbase to do my transactions, because it is the most reliable, secure and convenient exchange. They also have the most thorough verification process when it comes to adding altcoins.

Here is a summary of the key points of this article:

-Bitcoins are created from mining

-Mining is done by powerful machines that solve complex mathematical problems. You can also buy contracts called cloud mining if you don’t want to buy a machine.

-Problems get harder as parts are mined and production rate slows

-In May 2017, there are only 72 Bitcoins mined per hour (12 every 10 minutes)

-On June 23, 2020, this will be halved again to only 6 created every 10 minutes

-Almost 80% of the finished number of 21,000,000 Bitcoin coins have already been mined

-Competition between miners and increasingly complex mathematical problems make it more difficult to carry out mining for profit

-The final coin is estimated to have been mined in 2140

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