The COVID-19 pandemic and resulting lockdowns have changed the way the world works in many ways, including accelerating a digital revolution that has, among other things, shone the light on cryptocurrencies, such as Bitcoin and Ethereum.
A parabolic increase in the price of Bitcoin over the past year has also renewed focus on the concept of Bitcoin mining. (Throughout this article, we will refer to Bitcoin mining even though the concept applies to mining other cryptocurrencies as well.)
What is Bitcoin mining?
Suppose a person you are doing business with sends you Rs 100 through a bank transfer. At what point are you assured that the transaction has concluded? It is when the bank sends you a message or when you can check in your statement/passbook that you have received the amount. Your bank here acts as a settlement agent and once it confirms the amount is credited to your account, you can walk into your bank and withdraw the money.
Unlike the conventional monetary system, Bitcoin has no central clearing or settlement agent. Instead, users play the role of the bank in verifying transactions through a process called Bitcoin mining. As an incentive, miners are rewarded with the cryptocurrencies they mined for effectively working as an auditor of sorts.
The Bitcoin mining process is fairly technical and arduous. Though there is good news: Miners do not need any technical know-how — one can install Bitcoin mining software.
Having said that, there’s also bad news: Hardware required to mine cryptocurrencies can be