Crypto mining
Crypto mining is the process of digging for new cryptocurrency in the online ether. Not all cryptocurrencies can be mined. The most well-known currency to mine is Bitcoin, although currencies like Dash and Ethereum can also be created with this process.
How does Bitcoin mining work?
There’s only a finite amount of Bitcoin available. This means that when it comes to mining on the Bitcoin network, each one takes more computer power to unearth than the last.
If you want to mine Bitcoin, you need a super-high-powered computer that can solve complex computational equations in a short amount of time – but the chances of your computer actually solving one of these is about 1 in 13 trillion.
There are two purposes for mining:
- You create new Bitcoin
- You verify new transactions that appear on the Bitcoin Blockchain
Trading vs. crypto mining
If you buy crypto on an exchange platform like Coinbase, the rate that you get per coin is more likely to vary depending on the seller. Otherwise, trading crypto is a simple buy-sell transaction.
Comparatively, when you mine crypto, the process is a little different.
On a blockchain (an online ledger that records all crypto transactions for each specific currency), transactions are governed democratically. But what does this mean in practice? It means that you can’t transact without each transaction being verified by multiple parties on the network. These multiple parties are the miners.
As a miner, you’ll spend your time verifying transactions – and in return, you’re rewarded with small sums of cryptocurrency.
Hey there! We really hope this article helped you. Tax matters can be a dreadful topic at times. We know. That's why we started TaxScouts.
A stress-free way to getting your taxes done.
Have a minute? See how it works