The whole purpose of bitcoin was to democratize money. Bitcoin would provide people with a currency that wasn’t issued by a government or a bank, increasing their freedom.
The problem, however, is that getting access to bitcoins is tough. If you want a whole bitcoin, not just a fraction of one, you have to shell out thousands of dollars for the privilege.
The alternative, according to this newsletter at Miners For Sale, is to mine. But how do you do it? And what’s involved? Is it something that a random guy with a laptop can do from the comfort of his own home?
Why Are Bitcoins “Mined?”
At first blush, it’s not immediately obvious why bitcoins must be mined. After all, it’s a digital currency – increasing the number of coins in circulation is as simple as typing in a few extra zeros on the end of your balance sheet.
But when you think about it, this is precisely the reason why bitcoins should be mined. We don’t want a situation where an entity, like a government, can create new currency when it suits it. What we want instead is a situation where some external factor limits the number of coins that you can make.
It’s analogous to the situation we had under the Gold Standard. When all currencies were backed by gold, you could only issue as much currency as you had gold in your vaults. If you released more, you wouldn’t be able to give people their gold – the real money – if they all came asking for it.
Since leaving the Gold Standard, countries have experienced endless inflation and booms in asset prices. The fact that it’s difficult to mine bitcoin solves that problem.
What makes mining bitcoin a kind of “digital gold” is the fact that it’s hard to create new coins. To make a new gold coin, you have to open a mine, hire a bunch of miners, and then go digging for seams. It’s only worth mining new gold coins if you can sell the gold you extract to people for more than it cost to get them out of the ground. The same goes for bitcoins, but instead of digging through mud, you’re digging through data. Mining new coins requires solving difficult mathematical problems, and it takes a lot of computing power to do so.
How Much Money Can You Earn by Mining Bitcoins?
The way you earn money with bitcoin is by mining units called “block.” The bitcoin system rewards anyone who mines a block with a fixed number of bitcoins. Currently, the reward is 12.5 bitcoins per block, so to work out your total compensation, you multiply the price of bitcoin in dollars by 12.5. If the price of bitcoin is $5,000, then your reward is $62,500 – a considerable amount of money.
Mining a bitcoin from your laptop, though, is probably unrealistic. If you’re going to be successful, you’re better off buying a stake in a professional mining company and sharing the profits with other investors.