Bitcoin (capitalized) is an independent digital payment system based on what began as open source software and ended up revolutionizing the way we think about money forever.
The currency used in this payment system is also called a bitcoin (not capitalized), and it is decentralized, meaning that there is no central administration that administers or controls the currency in any way.
Bitcoin is based on the peer-to-peer model, making it government independent. Furthermore, since there is no one controlling organ, or a company associated with the currency, the government can’t really shut it down.
That being said, some governments (like the Chinese) have prohibited the use of the currency for the purchase of real life goods, as well as their use by financial structures. Still, most of the world is OK with bitcoins and even though some people have their concerns, the obtainment, spreading and trading of bitcoins is legal in most of the world.
The creation and trading of bitcoins is controlled by something called a “block chain”. The block chain is something like a public ledger where every member of the network has a copy and all members update their ledgers whenever a transaction occurs.
The whole concept is based on this ledger and this is what makes the idea so reliable and secure – since it’s not controlled by one single person, the likelihood of fraud or someone adding non-existent funds to their balance is minute.
Every block in the chain is a combination of different pending transactions that are processed from the network through mathematical operations.
The bitcoin difficulty of these operations depends on how fast the current operations are conducted. The aimed speed for solving one block on the network, on average, is 10 minutes. The difficulty is increased every two weeks in order to make sure that this timing is kept. The operations confirming the transactions in the block are called mining.
Mining is the main source of bitcoins in the network. Every solved block is worth 25 bitcoins but the reward goes to the one who solves it first. Keep in mind that everything explained thus far in the article is an oversimplification (putting it mildly) as the whole Bitcoin idea is insanely complicated.
Making a profit is based on the total amount of bitcoins mined, as well as the bitcoin price minus the money spent on bitcoin mining hardware, power (as the process is really power-hungry) and other costs.
One of the main aspects of the profit is the hash rate speed of the computations (measured in hashes per second).
A hash is the result of solving the block. The more hashes per second your hardware can dish out, the faster (on average) it will solve blocks.
The current hash rate of the whole network exceeds 1 petahash per second. The more of those your mining rig can make, the bigger profit you will probably generate, but there are other factors.
It’s generally impossible to predict your profits beforehand since there are many mathematical variables in the equation.
The use of bitcoin mining calculator is needed if you want to have a general idea of how long it might take you to generate a block and translate the mathematical values into an understandable profit.
The Bitcoin calc websites use different algorithms and take many variables into account so they can give you an estimated value of your profit (or potential profit).
Keep in mind that the values are estimated– many people use a bitcoin calculator before investing into a bitcoin hardware and when the actual numbers differ from what they imagine (and the numbers will be different), they start to wonder why that is and blame the system.
The truth is that a bitcoin profit calculator cannot possibly tell you 100% what your profit will be because it uses perfect values – this means that all potential problems like power outages and down times are out of the equation.
Furthermore, if you’re a part of a pool, results may also differ. So even though bitcoin calculators are a great way of getting an estimate, keep in mind that the actual numbers will probably be different.