When you deepen your understanding of Bitcoin (BTC), the word that always comes up is "mining". Mining is a word translated as "mining" in Japanese, and generally refers to the act of digging out minerals such as oil and gold. However, recently, when we hear about mining, many people think of Bitcoin (BTC) first. So why is Bitcoin (BTC), a collection of data that is not a mineral, called "mining = mining"? I will introduce the mechanism.
•Mining methods and features, etc.
•About mining taxes
What is Bitcoin (BTC) mining?
What is crypto asset (virtual currency) mining?
Mining is performed by trading various crypto assets (virtual currency), but here we will explain using the typical crypto asset (virtual currency) "Bitcoin (BTC)" as an example.
First, let's briefly explain Bitcoin (BTC) mining.
Bitcoin (BTC) mining is the "work of approving transaction data", and the reward for the work is paid in the new Bitcoin (BTC). It is called "mining" because it is similar to mining a small amount of gold from a large amount of stone.
What is "work to approve a transaction"?
Bitcoin (BTC) is traded on a daily basis all over the world, and the amount of transactions is enormous, such as billions of yen and tens of billions of yen. All of these transactions are managed by blockchain technology, giving people around the world peace of mind when trading Bitcoin (BTC). In other words, legal tenders such as yen, dollar, and euro are managed by the central banks of each country, but Bitcoin (BTC) is "managed by blockchain technology", which is a general legal tender. Is very different.
So how does blockchain technology manage Bitcoin (BTC) transactions?
In the blockchain, each transaction data of Bitcoin (BTC) is called a "transaction", and each transaction is put together to make one "block". Then, important information such as "when", "who (which address)", and "how much Bitcoin (BTC) was traded" is written in the block, and a third party checks the transaction information. And approve.
In other words, this "work to approve a transaction" is mining.
Who is mining?
People who mine Bitcoin (BTC) are called "Miner" and there are many people all over the world.
In mining, the miner who approves the transfer transaction is paid. Bitcoin (BTC) has a fixed amount of compensation, and as of August 2018, 12.5 BTC is paid for each block.
In the case of Bitcoin (BTC), on average, the remittance transactions performed during that period are checked and approved approximately every 10 minutes, so if 1 BTC is 700,000 yen, it will be 8.75 million yen in 10 minutes. If 1 BTC is 1 million yen, you can receive a high reward of 12.5 million yen in 10 minutes.
The rewards of Bitcoin (BTC) mining are so attractive that miners from all over the world compete in mining.
How does mining work?
Now that we've outlined Bitcoin (BTC) mining, let's take a closer look at how it works.
The key to mining is to use the computing power of your computer to find the numbers needed to generate new blocks faster than anyone else. Then, important transaction data such as "when", "who" and "how much Bitcoin (BTC) was traded" is encrypted and written in the block so that it cannot be tampered with.
So how do you prevent transaction data from being tampered with?
The blockchain technology uses a "one-way hash function" that is also used to speed up searches and data comparison processing. When you enter the data in the hash function, the value and length Different "hash values" are generated. This hash value is very complicated, and if the input data is different even by one character, it will show a completely different value, and once hashed data is irreversible.
Therefore, the miner who generated the new block hashed important transaction data such as "when", "who" and "how much Bitcoin (BTC) was traded", and wrote the generated hash value to the block. To go. Then, when all the hash values have been written, the transaction ends.
In addition, actual mining requires "a large amount of computer resources", and it is more economical to mine honestly than to do the bad thing of tampering, so tampering does not occur.
How do I get a mining reward?
Mining rewards can only be received by miners who have created new blocks. Therefore, in order to get the reward for mining, you need to win the competition with miners all over the world and finish the mining work as soon as possible.
However, finding the numbers needed to generate a block requires a lot of calculations and is like drawing a lot of lots with a very low probability of winning.
Therefore, miners all over the world prepare a large amount of high-performance dedicated hardware for mining. In addition, we are participating in mining by preparing a full range of equipment such as electric power for operating a large amount of dedicated hardware, equipment for cooling the dedicated hardware, and emergency backup power supply. Some of the miners are expanding their businesses on a large scale in Scandinavian countries such as China, where electricity is cheap, and Iceland, where the temperature is low, and it is even described as a "mining factory" because of its scale.
Can individuals participate in Bitcoin (BTC) mining?
You can participate in Bitcoin (BTC) mining with your own personal computer or smartphone, but it is quite difficult to receive rewards.
When Bitcoin (BTC) began to be issued, the number of miners was not so large, and the existence of mining was not widely known, so even if you participate in mining using your own computer at home, I was able to win some competition with other miners.
However, due to the significant rise in Bitcoin (BTC) prices, miners around the world are now participating in Bitcoin (BTC) mining, and moreover, they are running a lot of the latest computers, so individuals are Even if you challenge the battle with your home computer, there is almost no chance of winning. The situation can be likened to "an ant fighting an elephant".
If you are going to start mining from now on, it seems that you have a higher chance of receiving rewards if you participate in mining of crypto assets (virtual currency) other than Bitcoin (BTC).
Mining method and features, etc.
There are three methods of mining: solo (single) mining, pool mining, and cloud mining, each of which has different characteristics, advantages, and disadvantages. When starting mining from now on, it is important to understand each characteristic well and choose the method that suits you.
Solo (single) mining
"Solo mining" is to prepare a computer by yourself and participate in mining by yourself. It seems that there are many cases where people who are familiar with computers also participate as hobbies.
Benefits of solo mining
Since solo mining participates in mining alone, the rewards obtained for successful mining are larger than those for pool mining and cloud mining.
Disadvantages of solo mining
If you do not succeed in mining, there will be days when you will not get any rewards, and the rewards will vary widely. In addition, there are features such as having to prepare various equipment by yourself and requiring some knowledge of computers.
Pool mining
While solo mining is done by one person, multiple miners work together to mine in "pool mining". If the mining is successful, the reward will be received by the pool manager, and then the reward will be distributed according to the workload of the participating miners.
Benefits of pool mining
Since multiple miners work together to mine, the pool's computing power increases, making it easier to obtain stable mining rewards. Also, in solo mining, you cannot get rewards unless you succeed in mining, but in pool mining, you get rewards according to the computing power provided, so the variation in rewards is small.
Disadvantages of pool mining
Pool mining makes it easier to get stable rewards, but it requires a certain fee and reduces the chances of getting big rewards like solo mining. Also, as with solo mining, you have to prepare various equipment when you start mining.
Cloud mining
This is a method of having a mining company (miner company) perform mining. There are various forms of cloud mining, such as investing in a minor company to get a reward, renting a mining machine and getting a reward for success, and the initial cost, commission, advantages and disadvantages differ depending on the contract. To avoid trouble, it is important to have a good understanding of your business scheme when starting cloud mining.
Benefits of cloud mining
There is no need to prepare equipment like solo mining and pool mining, and even if you do not have specialized knowledge about personal computers, you can start mining with funds.
Disadvantages of cloud mining
In many cases, the initial cost is higher than solo mining or pool mining. In addition, there are risks such as bankruptcy of minor companies and escape of funds, so it is necessary to understand the business contents and contract contents well.
What is the tax rate on the profits earned from mining?
Taxes on the profits earned from mining are levied according to the income of the minor. In addition, the calculation method of the tax payment amount is different between the miner who is mining as a side business and the miner who is mining as a business. Both miscellaneous income and business income are subject to comprehensive taxation, so the tax rate will vary depending on the income level of each individual.
For final tax returns, refer to the NTA website and consult with your tax accountant or the nearest tax office if you have any questions.
What is the gain on the sale of crypto assets (virtual currency) received as a mining reward?
When cryptographic assets (virtual currency) received as a reward for mining are sold after being held for a certain period of time, if the price is higher than the market price at the time of receiving the reward, the "gain on sale" will receive the reward. If the price is lower than the market price at the time, a "loss on sale" will occur. In the final tax return, these gains and losses on sale are also recorded to calculate the taxable income.