How does mining make money?

[bimbleuk]

@Anbird123

Yep that's a good description plus the difficulty is a function of the total network hashing power but also a deliberate design to increase over time.

ETH is getting very difficult to mine at small scales where ETC the original fork of that network was deliberately delayed earlier this year with a soft fork.

One group that benefits hugely from the whole system are the exchanges. They take fees from deposit and Withdrawals plus they take a cut from every transaction which could be a profit or loss making transaction. They win either way.

 

[Sargatanas2511]

I might not have this exactly right but I will have a stab at it

bitcoin needs a network to track and approve transfers which is heavily encrypted, the miners provide the network and are rewarded with new coins... not all of the power available is actually needed for that work though, which is why the newly generated coins are basically dolled out on a lottery system, the more people are providing hashing power, the less likely you are to "win" this lottery which is what they mean when they talk about the difficulty increasing... basically if you are trying to help provide the network but there are too many people trying to do the same thing, then it becomes cost ineffective as the electricity you are using isn't being returned in you being awarded for completing someone else's transaction

pools exist for much the same reason as lottery syndicates, the more power a single syndicate or pool can collect together the more likely those members are to win something as opposed to nothing and the winnings are then split

so to answer your question, the people benefiting from the mining are the people wanting to perform transactions using bitcoins

Thanks for that! I had no idea it was a self sustaining project with no external influences. I assumed it was performing calculations that helped companies with complex projects and need a lot of processing power or something similar.

 

[Patches]

@sargatanas: If I got it right Ethereum actually offers that possibility through "smart contracts". And I would not say that there is no external influance, as the price of ETH is determined by the demand of users wanting to use them as currency.

 

[mid_gen]

I am pretty certain that it isn't just 'busy work'.

It is literally just busy work in the case of Bitcoin. An otherwise completely useless proof of work algorithm.

Main reason I think a non-proof of work crypto, or one that doubles as a distributed computing network that can do something useful rather than just converting electricity into heat, will replace BTC sooner or later.

 

[muon]

@sargatanas: If I got it right Ethereum actually offers that possibility through "smart contracts". And I would not say that there is no external influance, as the price of ETH is determined by the demand of users wanting to use them as currency.

If it were truly about transactions and how useful it was, then Bitcoin would not be worth more than Bitcoin Cash.

It is simply a store of wealth where the supply is strictly controlled. Trading volumes are actually pretty low. Physical money is supposed to have a high velocity. A lot of the trading is also between cryptocurrencies rather than normal currencies.

https://coinmarketcap.com/

It is also why the price swings so much and they largely move in sync. It is modern day gold but even less useful than actual gold.

The question is when the music finally stops.