Bitcoin has a public ledger which is called the blockchain. The
process of mining adds new transactions to this public ledger.
Why? Well, Bitcoin users need this process because it means that
every transaction is securely confirmed and verified while all
the users making use of the Bitcoin network has full access to
the blockchain – in other words, the Bitcoin ledger. Mining also
helps the network figure out which transactions are fair and
legit, eliminating any transactions that try to spend money a
second time.
So when someone “mines” Bitcoin they are in fact performing a
service to all Bitcoin users because they ensure Bitcoin
transactions are legitimate. During the process of mining people
who mine Bitcoin will complete a new block which means that the
miner gets a reward. In 2018 the return for completing a new
block was 12.5 Bitcoin, but the reward gets lower with time.
As you can imagine, mining requires a lot of hard work and
patience – you do not get Bitcoin mining results quickly. So
there’s an obvious analogy with actual, physical mining of
metals like gold. Hence using the word “mining” for the
computational tasks that generate new Bitcoin.
Choosing your mining equipment
Mining Bitcoin involves very complex calculations which are very
computationally intensive. So, choosing the right hardware kit
when you mine Bitcoin is really essential. You need to think
about a number of specific characteristics when you choose your
Bitcoin mining kit.
Hash rates
Perhaps the key aspect of your mining kit choice is this: the
hash rate that your mining hardware can sustain. Hash rate is
basically the number of crypto calculations that your mining
hardware can perform every second. It’s easy to see why a higher
hash rate will help you mine coins more quickly – simply because
more calculations per second mean that you solve the crypto math
required to mine a coin much more quickly. As a result you can
quickly complete a block and get your reward for doing so.
Hash functions work like this: whatever input you insert will
always give you the same output. So to find a specific output
you have to try as many random inputs as you can – as fast as
you can. It makes mining competitive and the miner who can
process more inputs than other miners will end up getting
rewarded faster. So, again, if you can get hardware with a high
hash rate you will have an advantage over other miners which
means you get more rewards more quickly.
The rate of measurements for hash rates is MH/sec, which is
short for megahashes per second. You can also measure hash rates
in terms of GH/sec and TH/sec, standing for giga- and terahashes
per second respectively. Bitcoin mining hardware have hash rates
which can range from a few hundred MH/sec all the way to 10
TH/sec (or 10,000,000 MH/sec).
Cost of energy
There are costs involved with mining Bitcoin, and it’s not just
the physical mining hardware you need to worry about. If you can
afford powerful hardware you will quickly find you have another
headache: the electricity cost associated with driving that
hardware because powerful mining hardware consume a lot of
power.
When buying hardware you therefore need a close look at the
electricity consumption of the kit – work it out in watts and
then see how much it will cost you, so that you don’t get a big
surprise when you get your next electricity bill. If you don’t
you risk spending all your mining profits on electricity – or
indeed face making a big loss.
Hash rate alongside energy consumption is a good way to evaluate
mining profits. Compare the hashes you can complete in an hour
with the cost of electricity per hour (or per day). An easy way
to do this is to divide the hash rate of your kit by the watts
consumed. It’ll give you a MH/s per watt rate which can guide
you, alongside current electricity costs, to find whether your
mining kit will produce a profit.
Don’t forget to include extra costs like the computer hardware
that drives mining GPUs when you calculate profits - your PC
will also consume power on top of the mining hardware that you
have.
Bitcoin mining hardware options
When Bitcoin was just released a wide variety of people paid
attention as it was a unique idea that people found very
liberal. In any case, Bitcoin was very revolutionary compared to
the way transactions were processed before: by centralised
banks. This self-governing network was outside the remit of
financial institutions, tax authorities and other big
organisations because it was completely decentralised.
In these early days of Bitcoin less people knew about the
cryptocurrency and fewer people were buying and investing in
Bitcoin, so the value of Bitcoin was not as high. The result was
that it was easy to mine Bitcoin which meant that there were
many miners interested in mining Bitcoin for profit, but they
were also interested in Bitcoin because it was such an
incredible, novel idea. Back then, mining Bitcoin required the
use of basic computing power – even a laptop was enough, or a
powerful desktop computer.
Through this process of mining Bitcoin with laptop and desktop
computers people started realising that GPUs (graphics cards)
were capable of really boosting Bitcoin mining ability. GPUs are
well-suited for Bitcoin mining: GPUs consume less power than a
computer CPU dedicated to mining and GPUs can mine at 50 to 100
times the rate.
As a result dedicated devices which were custom-designed for
mining was introduced to the market. Mining capabilities
multiplied and this lead to an interesting development: Bitcoin
mining farms which were effectively profit centres – and which
led to the development of a more formal industry dedicated to
mining Bitcoin.
Over time Bitcoin mining has become very profitable and a lot of
serious miners operate very large Bitcion mining farms that
generate a lot of money. It’s a mix of hardware involved in
these mining farms – including GPUs alongside powerful coolers
to keep temperature down. Electricity is a big problem for these
operations but in some countries electricity prices are low and
this is why mining farms have concentrated in places with cheap
electricity.
Unfortunately, it does mean that to mine Bitcoin you are up
against very capable mining operations with a lot of capital
behind them – it’s basically a competition against big companies
around the globe that have a lot of money to spend. There are
still countless individual Bitcoin miners too – and they tend to
collaborate for profit by joining Bitcoin mining pools.
Choosing a CPU
As much as a CPU is really central to your computer it is not in
fact the most important part in a Bitcoin mining rig. Yes, back
when Bitcoin just launched you could mine using a CPU alone and
you could do it profitably as long as your PC’s CPU had enough
power.
Miners worked hard to maximise their profits however so the
result is that they tried different types of hardware for
mining. They quickly found that CPUs are not the best options
for mining Bitcoin. You still need to use a CPU to power your PC
that runs the mining rig, but your CPU will take decades to mine
a meaningful amount of Bitcoin.
GPUs for mining
There are a lot of different uses for GPUs, or graphics
processing units – ranging from playing advanced 3D games
through to doing 3D rendering. In fact, the original design
remit for GPUs were the ability to calculate the math that
allows top-end video games to look as good as they do. However,
by coincidence, this also meant that GPUs are excellent tools
for performing hashing functions. And, as we know, hashing is
key to solving the crypto puzzles that solve blocks of Bitcoin
transactions.
GPUs are not cheap, at several hundred dollars each, but there
is a huge advantage for GPUs over CPUs when it comes to hashing.
A good GPU could easily hash at hundred times the rate of a
top-end CPU. This fact led to the rise of what is called a
mining rig: a basic computer linked to a large number of GPUs –
all dedicated to mining and to mine so as fast as possible.
However, some people used these machines in a mixed-use
configuration, for example playing 3D games at certain times
while mining when they’re not gaming.
However bad news for GPU mining surfaced quickly: today you
cannot really mine Bitcoin profitably using GPUs. To cut a long
story short, the more powerful mining equipment becomes the more
difficult it becomes to mine Bitcoin. The result is that GPUs
can no longer effectively mine Bitcoin compared to alternatives
– which we’ll talk about below. So, you won’t make your money
back in capital and electricity spend if you use a GPU to mine
Bitcoin.
FPGAs in Bitcoin mining
GPUs were soon succeeded by something called a field
programmable gate array, or FPGA. An integrated circuit, FPGA’s
need to be configured after they are built but it does mean that
a company which builds mining kit can buy a lot of FPGA and then
set these up to be excellent at mining Bitcoin. FPGAs turned out
to be a great option for mining Bitcoin and it changed the
parameters for Bitcoin mining – removing GPUs from the playing
field.
In fact, FPGA mining rigs were the first mining kit which used
hardware specifically designed for Bitcoin mining, and which
could only be used to mine Bitcoin. In one key development it
was quickly found that FPGA’s used a lot less power than GPUs –
in fact, for the same hash rate, an FPGA could use less than 20%
of the power of a GPU – which means mining operations were a lot
more profitable.
What are ASICs?
The final stage in the Bitcoin mining arms race,
application-specific integrated circuits or ASICs were chips
designed from the ground up to mine Bitcoin. You can’t program
an ASIC, it’s functionality is printed into its circuits and in
the case of Bitcoin mining rigs ASICs could only be used to mine
Bitcoin. Good ASICs could mine at 100 times the rate while using
less electricity. At this stage there is no replacement
technology for ASICs on the horizon, so ASICs remain the fastest
way to mine Bitcoin for the foreseeable future.
Of course, a custom-designed chip will be time consuming to make
and fairly expensive. However this expense does come with
results – a top of the line miner from a company such as
AntMiner can get you to hash rates which are in the terahashes
per second range – easily over 10TH/sec. The price? Over a
thousand dollars. You get cheaper solutions too but the speed
will be less. Working out mining profitability
Getting your mining profits right is difficult and it does
depend on hardware choice which is why mining beginners can find
the choice of hardware a bit overwhelming to cope with. Getting
your hardware choice right will determine you profits so you
need to be able to calculate profitability to cover the cost of
the hardware as well as the electricity you are consuming. It’s
important that you make this calculation before you spend money
on hardware because your hardware can be difficult to resell.
Thankfully you can consult a pre-built calculator to help you –
two options include BTC Mining Profit Calculator, which lets you
add facts like the price you are paying for your hardware plus
the hash rate you are achieving alongside the electricity you
consume – it then takes the current price of Bitcoin and tells
you whether your investment will reap rewards – or just end up
costing you money. Another calculator you can try is the one
from Genesis Block.
Choosing mining software
Thought choosing mining hardware will be difficult? You have
even more choices to make – this time around the software you
use for mining. You don’t need mining software for all types of
mining rigs but you probably will – GPUs and FPGAs also need you
to make available a computer you can use for mining, which acts
as host for Bitcoin’s client plus the mining software you choose
to use.
Why a Bitcoin client and mining software? Well, the Bitcoin
client connects your miner to the bitcoin network and the mining
software is the application which utilises your mining hardware
to solve cryptography puzzles in order to solve transaction
blocks – which of course is what you are rewarded for.
ASIC system can be pre-configured with software, they could even
include a Bitcoin address that’s ready to use. All you need to
do is plug your ASIC miner into a socket and get started. Older
ASIC rigs however needed separate software to get them going.
Which are the most popular Bitcoin mining software options? We
think you should check out one of these five solutions,
depending on your exact needs:
Bitcoin Miner. It does what it says on the tin and is easy to
use while offering a power saving mode as well as support for
mining pools. This app is know for its ability to quickly submit
shares and it also helps you to generate a profit report. For OS
X or Windows.
RPC Miner. If you’re a Mac user you will like RPC Miner because
it closely integrates with OS X and the APIs in OS X – alongside
OS X’s subsystems.
CGMiner. Supporting Linux, OS X and Windows, CGMiner comes with
extra features including the ability to control fan speed
alongside remote control. It detects new blocks on its own
thanks to an internal database and supports both CPU and GPU
mining, with support for multiple GPUs.
BFGMiner. Need something that is designed for ASICs? Consider
BFGMiner which is very similar to CGMiner except for the fact
that it support ASICS. It also works across all the major PC
operating systems.
EasyMiner. With useful performance graphs EasyMiner is a great
solution if you want support for a range of mining protocols. It
can work in either solo or pool mode and is available for Linux
and OS X.
Understanding mining pools
The computer resources required to mine Bitcoin has increased to
the extent that successfully mining Bitcoin now requires you to
compete against organisations with a lot of money, and which can
set up big mining farms. So it is hard to mine solo and one of
the ways to improve your ability to mine Bitcoin is for you to
join a pool of Bitcoin miners.
When pooling your mining efforts you basically give your
computing resources to the collective mining effort so that
blocks can be found faster, which means rewards are obtained
more quickly. These rewards are then split amongst the people
who contribute their computing resources in a way that’s
proportional to their contribution. Joining a pool can therefore
make your mining income more streamlined as you’ll get paid more
quickly – even if the individual payments could be small.
It’s easy to join a pool, you sign up just like you would sign
up with any other website – by creating an account. You then add
a worker – or multiple workers if you have multiple rigs – and
attach the workers to your hardware rigs. Keep in mind that
pools charge for their services so you could loose between one
percent and ten percent of your mining rewards. Some pools
charge no money whatsoever.
Can you profitably mine Bitcoin?
The profits you can generate when mining Bitcoin has rapidly
changed over the years as Bitcoin itself has become more
valuable, while the difficulty of mining Bitcoin has increased
exponentially. The early enthusiasts who used CPUs to mine
Bitcoin will now no longer be able to make any money out of
doing so, instead the game is in the hands of people who operate
enterprise-scale mining ventures.
So in essence the easily obtainable Bitcoins were mined long ago
so today mining is incredibly hard, like trying to find
diamonds. The increasing value and popular appeal of Bitcoin has
also drawn a lot of new players into the Bitcoin mining scene
which makes the competition for mining new coins even tougher –
it means that you simply need more and more powerful computing
resources to mine a coin.
Specialised mining gear is now key
It’s not that you can’t mine – it just means that to make a
profit you now need fairly specialised Bitcoin mining gear.
Individuals trying to mine will often find that they simply
spend more on the electricity they use to mine than what they
get in return for mining. In part, access to cheap electricity
is key to mining Bitcoin successfully today and so is scale –
the ability to put together a very large mining operation.
People who mine at home also need to cope with all sorts of
issues ranging from the power going out through to hardware that
breaks down and getting disconnected from the internet – not to
mention crashed in the price of Bitcoin, which happen
occasionally. It really is very difficult for people to mine
Bitcoin at home and make any money at all.
That doesn’t mean that the mining at home proposition won’t
change: ASICs are becoming better and better while the software
that handles the hardware is also becoming more capable. In the
future all these factors could change so that individuals can
again mine Bitcoin at home – which would be a good thing because
it supports the decentralised aspect of Bitcoin. In other words,
people mining Bitcoin at home prevents all the power from
accumulating with a few large players.
What you need to know about Bitcoin cloud mining
There is an alternative to mining Bitcoin using your own
equipment. It’s known as cloud mining, and it operates on a
principal similar to other cloud services. Instead of owning
your own computer equipment you “rent” mining capabilities from
someone else. It’s a bit like buying a mining contract and in
doing so you will be sharing in the vast computing capabilities
of the company you contract with.
Without a doubt Bitcoin cloud mining can be easier than trying
to do it with your own hardware because there’s no need to worry
about software, internet bandwidth or the cost of electricity.
And, of course, you don’t have to pay for the hardware either.
All you need is an internet connection and ideally your own
Bitcoin wallet to keep your coins locally.
Note though that when you’re outsourcing your mining activity to
a cloud mining provider you will take a degree of risk. You hand
over almost all control to the cloud mining vendor. That's why
choose only reputable cloud mining providers like Jup Trader .