Crypto Research

Bitcoin mining simply explained (Part 3/4)

May 10, 2022

You've probably heard the term "bitcoin mining" before, right? But what that is exactly is not entirely clear to you. Or maybe you know something about it but don't understand how it works, where its value comes from and how it is currently evolving.

What makes Bitcoin Mining so interesting?

As a miner, you can guarantee the results in Bitcoins. Basically, you already know the network difficulty because you can track it. You know the performance of the miner computers and you know the running costs. It is quite easy to calculate the net profit in Bitcoins. What you don't know is the Bitcoin exchange rate to USD or any other fiat currency at any given point in time.

Why do mining pools exist?

There are now hundreds of thousands or even millions of computers working simultaneously to crack the next block. If you want to start with the private miner calculator to crack the next block, the probability is very low. For this reason there are so-called mining pools. A mining pool is a collaborative group of cryptocurrency miners who combine their computing resources across a network to increase the likelihood of finding a block or otherwise successfully mining for cryptocurrency. This pool then calculates the next block together. If someone from the pool then finds the next block, the reward and the transaction fees are divided equally between the entire pool and depending on how much computing power you have contributed.

What is cloud mining?

Cloud mining is the process of Bitcoin mining using a remote data center with shared processing power. This type of mining allows users to mine Bitcoins or Altcoins with rented cloud computing power and without installing the hardware and associated software. Cloud mining companies allow people to open an account and participate in the mining process remotely for a basic fee, making mining accessible to a larger number of people around the world. Since this form of mining is done via the cloud, problems such as equipment maintenance or direct energy costs are reduced. Cloud miners become participants in a mining pool, where users acquire a certain amount of "hash power". Each participant receives a proportionate profit share in relation to the rented hashing power.

However, since cloud mining is provided as a service, there are generally some costs that can result in a lower return for the miner, i.e. participants.