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 Xpartradinglive
.