Bitcoin may be mined in the same way that natural resources are mined. Because miners are paid for their efforts with cryptocurrency tokens, mining has a magnetic appeal for many cryptocurrency investors. Cryptocurrency mining, in a more technical sense, is a transactional process that requires the use of computers and cryptographic methods to solve difficult functions and store data on a blockchain.
A transaction occurs when someone sends Bitcoin somewhere. Banks, point-of-sale systems, and tangible receipts log regular transactions, but Bitcoin miners do the same thing by grouping transactions into “blocks” and adding them to a public ledger known as the “blockchain.” Nodes then keep track of those blocks in order to verify them later.
In Bitcoin mining, when miners add a new transactions block to the blockchain, one of their responsibilities is to ensure that the transactions are correct. Bitcoin miners, in particular, ensure that Bitcoin is not duplicated, which is a huge concern with printed currencies because counterfeiting is always a problem.
What is the procedure for mining Bitcoins?
Mining serves two purposes: it allows for the creation of new Bitcoins and it is an important part of the blockchain ledger’s upkeep and development.
To comprehend how most cryptocurrency mining works on a more technical level, you must first comprehend the technologies and processes that underpin it. This entails comprehending what blockchain is and how it functions.
A blockchain is a decentralized ledger that is used by traditional cryptocurrencies like Bitcoin. A blockchain is a collection of linked data blocks that include cryptographic hashes as well as other important data. These blocks, which are necessary for a blockchain to function, are collections of data transactions that are added to the ledger’s terminus. This procedure helps to make transactions more transparent.
The blockchain is where it all starts. The term “block” refers to a set of approved transactions. The term “blockchain” comes from the fact that these blocks are connected in a “chain.”
A miner’s purpose in the Bitcoin network is to solve complex mathematical problems in order to add individual blocks to the blockchain. This necessitates a tremendous amount of computing and electrical resources.
While several miners compete to add each block to the blockchain, the miner who solves the challenge is the one who adds the block to the blockchain, along with its approved transactions.
The miner who solves the challenge correctly receives a reward of 6.25 bitcoins and adds a block to the Bitcoin blockchain. A single bitcoin is currently valued over $30,000 at the time of writing this article. This translates to roughly $200,000 in Bitcoin for each successful miner. Is that not a very good return on a “bunch of complicated mathematical problems”?
There are various prerequisites when it comes to the actual mining process because of the inherent difficulty of mining Bitcoins.
Steps to take to get started in mining ?
Every 14 days, Bitcoin adjusts the difficulty necessary to mine a single block (or every 2,016 blocks mined). The overall goal is to keep the time it takes to mine a bitcoin to under ten minutes. Because Bitcoin has been around since 2009, its mining difficulty is currently exceptionally high, necessitating the use of resource-intensive, expensive technology.
This means that your Core i7 (processor) PC with 16GB RAM will not be able to mine Bitcoin, as typical home computers will not be successful in today’s Bitcoin mining ecosystem.
Specialized mining hardware known as APPLICATION-SPECIFIC INTEGRATED CIRCUITS (ASICs) is the first and most critical piece of equipment needed to mine Bitcoin in Nigeria. The cost of a new ASIC device might range between $500 to $10,000. However, the cost of mining equipment is a small part of the overall cost. ASICs use a lot of electricity, and depending on the price of electricity in your location (monthly billing or prepaid metering), the cost of ASICs can quickly outweigh the cost of the device they are used in. And since PHCN (power holding company of Nigeria) is now submerged in making sure every household subscribe to prepaid method of electricity usage and billing, mining might cost a lot more for prospective miners in Nigeria than imagined.
To join the Bitcoin network, you will also need to select Bitcoin mining software, which is not nearly as costly as its hardware. There is even free mining software available online, but it is recommended that you invest in a more trustworthy application program that costs between $100 and $3,000.
Another significant expense is the purchase of a backup industry generator to power the mining rig in the event of a power outage, which is common in Nigeria. Depending on what works best to power the mining machine, this will cost anywhere from ₦10 million to ₦20 million.
Electricity expenses
This is the most crucial expense to consider, and it will determine whether or not you want to go into the mining company. One Bitcoin transaction is projected to take 1,544 kWh to execute, which is the equivalent of almost 53 days of power for the average US family, according to The Digiconomist’s Bitcoin Energy Consumption Index.
A Class A rate that offers 20 hours of power per day would cost ₦57.10 per kilowatt in Nigeria, according to a Nairametrics enquiry from an Ikeja Electric employee. In Nigeria, the total cost of electricity to mine a Bitcoin would be almost ₦88,000 if these two variables are taken into account.
Other costs such as renting a building, hiring support people to monitor the rig, maintaining a solid internet connection, and maintaining the rig in the event of faulty hardware will be considered.
Is it feasible to mine?
The hardware, software, and electrical costs must all be taken into account when determining the profitability of Bitcoin mining. Because the market is so volatile, the current value of Bitcoin will be taken into account as well. It is also necessary to consider Nigerian taxation, which is now set at 30%.
The cost of the mining rig, software, generator, and other supportive equipment demonstrates how expensive mining can be. These prices alone should make you reconsider entering the mining business, and another cost that may seem trivial but is crucial is internet speed. Mining is similar to a competition between multiple miners that are competing for a commission on the block they are mining. The rigs and software become useless without enough internet connectivity, which is difficult to come by in Nigeria.
Mining a Bitcoin worth $30,000 today will not provide a significant return on investment. Especially when other expenditures such as rent and the human capital required to supervise the devices are included.
In conclusion
Individually, getting into the mining business will not be cost-effective, and mining a Bitcoin worth $30,000 on a wide scale with a substantial amount of capital investment may not provide a good return on investment.
It is difficult to understand how mining can be economical in Nigeria when considering expenditures such as rent and human capital required to oversee the machines, as well as challenges with power supply and the difficulty of obtaining strong internet connectivity to fuel the mining process.
The regulatory environment in Nigeria is also vital to understand, as it is nearly as volatile as the bitcoin market. Nigerian banks were recently prohibited from processing any cryptocurrency-related transactions, and this is unlikely to change anytime soon. Despite the fact that the country has not stated anything about Bitcoin mining and has not enacted any regulations prohibiting it, regulators may be wary of the business if it takes off.
