Bitcoin is a cryptocurrency that works on the Blockchain technology. It supports peer-to-peer transactions, which are authenticated via the crypto’s proof-of-work consensus mechanism. Proof-of-work (PoW) is a technology that supports digital currencies by preventing people from performing fraudulent transactions. This rewards cryptocurrency miners who validate the transactions. So, if you are asking the question, how does Bitcoin make money, you’ve got the answer.
The network of Bitcoin miners makes money from Bitcoin by validating transactions. Since these currencies can be exchanged for fiat currency, they can be used to purchase anything from supporting merchants and retailers.
Find out more about how Bitcoin makes money in this post.
What Is the Bitcoin Cryptocurrency?
Bitcoin is a virtual or digital asset that is completely decentralized. It means that it isn’t in the control of a specific group, company, or individual. You can purchase it on various platforms. This currency came into being in 2009. The identity of its developer, who goes by the name Satoshi Nakamoto, is not clear yet.
Bitcoin is given to Blockchain miners as a reward for verifying transactions. Since its inception, the crypto has rapidly grown. Although it does have its fair share of competitors, Bitcoin has still managed to keep going till the present day.
The Working of Bitcoin
Bitcoin is a digital asset you can store in a digital wallet or virtual currency exchange platform. Every single Bitcoin is worth the value of this currency’s existing price. The smallest denomination of this currency, Satoshi, is equal to a hundred millionth of a single Bitcoin.
Bitcoin is built on Blockchain. This technology creates a shared public history of every transaction. All the transactions are arranged into blocks. Blockchain records each transaction in a way that it cannot be erased ever.
A digital Bitcoin wallet has a private and public key. Through them, the Bitcoin owner begins his transaction and also signs them. This lets Bitcoin to transfer the ownership of the currency from one person to another. Transactions are verified on the Bitcoin network. They are verified through mining. It ensures that the transactions taking place are consistent with those completed in the past.
How Does Bitcoin Make Money?
Bitcoin makes money through the mining process. In this process, they are rewarded to those who validate the Bitcoin transactions. Bitcoin mining means making new Bitcoins via solving very complex math problems. When a miner mines a Bitcoin successfully, they get a specific amount of Bitcoin.
Bitcoin miners or nodes own high-speed computers. They confirm every transaction. After that, they add a ‘block’ of transactions to the ‘chain.’ This results in a blockchain, which is a permanent record of each Bitcoin transaction.
The payment made to Bitcoin miners incentivizes the decentralized network to validate every transaction. It, in turn, minimizes the risk of fraud.
How to Begin Bitcoin Mining
Bitcoin can be mined through many hardware and software. If you are a miner, you can employ your personal computer to mine. But today, all miners are a part of a network. It prevents the chances of solving a hash individually.
Some basics that will help you get started with Bitcoin mining include the following:
- A wallet: A wallet will store the Bitcoin you earn after mining. It is an encrypted online account that lets you keep, transfer, and accept cryptocurrency. Some companies that provide wallets are Exodus, Trezor, and Coinbase.
- Mining software: Many mining software are freely downloadable. They are compatible with all Windows and Mac systems. You just need to connect the software to the hardware and start mining.
- A powerful computer: In order to begin Bitcoin mining, you need a very powerful computer. This means you must spend money to buy a computer that uses substantial electricity to mine successfully. Note that the hardware costs can go above $10,000.
The Pros and Cons of Bitcoin Investing
Bitcoin is highly volatile. So, you must invest only the amount you don’t mind losing.
Benefits of investing in Bitcoin
- You can make transactions at a highly affordable cost very quickly anytime, anywhere.
- Engaging in Bitcoin transactions does not require you to divulge any personal data about yourself. Thus, they maintain complete privacy.
- Bitcoin is a fully decentralized currency. It means that no kind of financial crisis can touch you as it is not governed by any regulatory body.
- Bitcoin shows good promise of growing in the future.
Downsides of investing in Bitcoin
- Bitcoin’s price is extremely volatile. It rises and falls dramatically. You need a strong heart to invest in it.
- Bitcoin technology has been exploited by hackers in the past. Bitcoin worth over 30 million has been stolen from several accounts.
- Conventionally, investors get the protection of the Securities Investor Protection Corporation. But it does not give any protection for Bitcoin.
Bitcoin mining is the reason how does Bitcoin makes money. But doing this process is not easy. You can only earn from it by selling it to another person at a greater price. It isn’t regulated by anyone. So, every investment you make is at your own risk.