Bitcoin mining, or any cryptocurrency mining for that sake, isn't as complex and hard to grasp as one might think initially. Of course, it is a highly abstract subject that compared to a lot of other things actually is a bit hard to understand - that I can not deny. But I still think that it is much easier to understand how it all works than what most people think in advance and also what they feel after starting to read about it.
So, who am I to explain bitcoin mining? Well, I do not have any kind of hardware engineering education except for building a couple of gaming computers when I was growing up and played a lot of computer games. Neither do I have any electrical skills, but
I do have a curiosity that drives me to test things, and one of those things I got very curious about happened to be cryptocurrency mining.
The year was 2015/2016 and I had just lost a couple of bitcoins due to a lack of knowledge and understanding of how it all works. I had since I lost my first bitcoins been reading almost addictively each and every day about crypto for half a year. So I had got to the point where I wanted to test my theoretical knowledge with practical execution. So that was what I together with a couple of friends did and here is a video on how it looked:
And here is what I learned about cryptocurrency mining
To put it very simply - Crypto mining is like a gamified system of computer nodes where each node contributes to the system by guessing the number that the system throws out on average every 10th minute (in the case of bitcoin). The complexity (how hard it is to guess) if the number is adjusted based on how many nodes are currently guessing. In other words - the more nodes connected (the more energy they collectively contribute), the more complex the number will be. The system does this adjustment so that it on average will always take around 10 minutes for each block to be mined into the bitcoin blockchain. For other blockchains, such as Ethereum, these 10 minutes can be something else, in Ethereums case it is every 15th second.
So what does the system throw out this number and why should every node try to guess what it is?
Well, it is this process that makes the system decentralized. Every time someone guesses the correct number - that node "wins" the right to put the next block into the blockchain and for that, the node will be rewarded with a payout of freshly minted cryptocurrency, for example, Ethereum or Bitcoins. In the case of Bitcoin, each time someone guesses right, they will be rewarded with 6.125 bitcoins (which is equal to approximately $336K dollar at the current bitcoin price; $55K.
The only way to increase your chances of having the node that guesses the correct number is to add more hashing power and the only way to add more hashing power is to use the latest/best mining equipment in existence and consume as much energy as possible - in that way you will "convert" that energy to guesses.. so in other words; The more power you have got, the more times you can guess on the number. And btw, if you think "well isn't there a better way to figure out what the number is than guessing on it?" and the answer is of course no. There are no other ways than simply guessing.
Now we have come a bit into the understanding of crypto mining. To walk through it all again in a shorter way: Nodes compete with each other on who can guess on an unknown number. The more collective energy that the nodes consume to guess the number, the harder / more complex the number will be. Every time someone guesses correct - there is a reward paid out. When someone guessed the right number, they also need to put a block into the blockchain. This block consists of the latest transactions.
So what do I think about crypto mining?
It is a very competitive market and it is difficult to set up and maintain all the GPUs and CPUs and ASICS used to do the guessing. (if you have no clue about what GPU, CPU, ASIC is... well then all you need to know is that these are some kind of "machines" that are used to do the guessing of the number.
Mining is also very expensive and a high-risk business. You will have to change equipment every now and then since your competitors (the others who also are guessing on the number) will update and renew their equipment continuously which makes your equipment outdated/slow/inefficient. On top of that, you are dependent on that the price of the particular crypto that you are mining continues to go up otherwise your rewards may be way lower than the cost of your equipment and maintenance and in other words, you will never reach break-even.
I would not reccommend anyone who does not have access to very cheap electricity and a whole bunch of millions of dollars to buy new mining equipment. You also need to be willing to put a lot of time and energy into fixing things with the mining equipment that stops working, in other words - you will need to maintain everything a lot. This recommendation is of course if you want to do it as some kind of serious business. If you don't care and just want to run some mining on a few graphic cards and do not care about making a profit or not - then I would of course recommend you to do that just to learn more about mining.
Mining is a very competitive market. You should not consider entering the business unless you have a lot of capital and access to huge amounts of free or almost free electricity. It can be fun and educational to do it as a hobby, but not as an investment as it is a very high-risk business and at the same time very difficult. And I mean difficult in the sense that you will need to set it up, you will need to have a place where a lot of noise and heat from computers are okay, you will need a lot of capital, you will need free electricity and you are dependent on that the price continues to go up... BUT if you have all those circumstances then the crypto mining business can be a highly profitable business.
Over and out