If youre heard about Bitcoin then you probably heard about Bitcoin mining as well the concept of creating Bitcoins from your computer. The following post will give you a complete overview of what Bitcoin mining is and how it actually works.
Bitcoin mining is the process of updating the ledger of Bitcoin transactions known asthe blockchain. Mining is done by running extremely powerful computerscalled ASICsthat race against other miners in an attempt to guess a specific number.
The first miner to guess the number gets to update the ledger of transactions and also receives a reward of newly minted Bitcoins (currently the reward is 12.5 Bitcoins).
Today, in order to be profitable with Bitcoin mining you need to invest heavily in equipment, cooling and storage.Its not possible to mine Bitcoin profitably with a PC or a GPU at home. You can calculate your profitability using aBitcoin mining calculator.
Heres what youll need to do to get started with Bitcoin mining:
Thats Bitcoin mining in a nutshell. If you want a more detailed explanation about mining keep reading this post. Heres what Ill cover:
Bitcoinis a decentralized alternative to the banking system. This means that the system can operate and transfer funds from one account to the other without any central authority.
With a trusted central authority, transferring money is easy. Just tell the bank you want to remove $50 from your account and add it to someone elses account. In this example, the bank has all the power because the bank is the only one that is allowed to update the ledger that holds the balances of everyone in the system.
Bitcoin, on the other hand, creates a system that has a decentralized ledger. It gives independent miners the ability to update the ledger without giving them too much power.
Anyone who wants to participate in updating the ledger of Bitcoin transactions, known as the blockchain, can do so. All you need is to guess a random number that solves an equation generated by the system.
Of course, this guessing is all done by your computer.The more powerful your computer is, the more guesses you can make in a second, increasing your chances of winning this game. If you manage to guess right, you earn bitcoins and get to write the next page of Bitcoin transactions on the blockchain.
The solution to the equation is very hard to achieve but very easy to validate. You can think of a Rubiks cube as a good example for this (very hard to solve, but easy to see youve solved it).
Rubiks cube hard to solve, easy to prove youve solved it
Once your mining computer comes up with the right guess, your computer determines which pending transactions will be inserted inthe next block of transactionson the blockchain.
Compiling this block represents your moment of glory, as youve now become a temporary banker of Bitcoin who gets to update the Bitcoin transaction ledger.
The block of transactions youve created, along with your solution, is sent to the whole network so other computers can validate it.
Each computer that validates your solution updates its copy of the Bitcoin transaction ledger with the transactions that you chose to include in the block.
The system generates a fixed amount of bitcoins (currently 12.5) and rewards them to you as compensation for the time and energy you spent solving the math problem.
Additionally, you get paid anytransaction feesthat were attached to the transactions you inserted into the next block.
All the transactions in the block youve just entered are now confirmed by the Bitcoin network and are virtually irreversible.
Heres a two-minute video showing the process of blocks and confirmations.
Its called mining because of the fact that this process helps mine new Bitcoins from the system. But if you think about it, the mining part is just a by-product of the transaction confirmation process. So the name is a bit misleading, since the main goal of mining is to maintain the ledger in a decentralized manner.
Since mining is based on a form of guessing, each time a different miner will guess the number and be granted the right to update the blockchain. Of course, the miners with more computing power will succeed more often, but due to the law of statistical probability, its highly unlikely that the same miner will succeed every time.
Now that you know what Bitcoin mining is, you might be thinking, Cool! Free money! Where do I sign up? Well, not so fast
Satoshi Nakamoto, Bitcoins inventor, crafted the rules for mining in a way that the more mining power the network has, the harder it is to guess the answer to the mining math problem. So the difficulty of the mining process is actually self-adjusting to the accumulated mining power the network possesses.
If more miners join, it will get harder to solve the problem; if many of them drop off, it will get easier. This is known asmining difficulty.
Difficulty is self adjusting in order to create a steady flow of new bitcoins into the system. In a sense, this was done to keep inflation in check. Mining difficulty is set so that, on average, a new block will be added every ten minutes (i.e., the number will be guessed every ten minutes on average).
Now, remember, this ison average. We can have two blocks being added minute after minute and then wait an hour for the next block. In the long run, this will even out to ten minutes on average.
The difficulty adjustment is done every 2016 blocks (every 2 weeks on average) retroactively. Meaning, every 2016 blocks the system looks back on the past 2016 blocks and calculates the average block time. If its under 10 minutes it will increase the difficulty, if its over 10 minutes it will lower it.
When Bitcoin first started out, there werent a lot of miners out there. In fact, Satoshi, the inventor of Bitcoin, and his friendHal Finneywere a couple of theonly people mining Bitcoinback at the time with their own personal computers.
Using your CPU (central processing unityour computers brain) was enough for mining Bitcoin back in 2009, since mining difficulty was very low. As Bitcoin started to catch on, people looked for more powerful mining solutions.
A GPU (graphics processing unit) is a special component added to computers to carry out more complex calculations. GPUs were originally intended to allow gamers to run computer games with intense graphics requirements.
Because of their architecture, GPUs became popular in the field of cryptography, and around 2011, people also started using them to mine bitcoins. For reference, the mining power of one GPU equals that of around 30 CPUs.
FPGA is a piece of hardware that can be connected to a computer in order to run a set of calculations. They are just like GPUs but 3100 times faster. The downside is that theyre harder to configure, which is why they werent as commonly used in mining as GPUs.
FPGAs are more efficient than GPUs for mining purposes
Around 2013, a new breed of miner was introduced: the ASIC miner. ASIC stands for Application Specific Integrated Circuit.
ASICs are pieces of hardware manufactured solely for the purpose of mining Bitcoin. Unlike GPUs, CPUs, and FPGAs, they couldnt be used to do anything else. Their function was hardcoded into the machine.
Today, ASIC miners are the current mining standard. Some early ASIC miners even appeared inthe form of a USB, but they became obsolete rather quickly. Even though they started out in 2013, the technology quickly evolved, and new, more powerful miners were coming out every six months.
After about three years of this crazy technological race, we finally reached a technological barrier, and things started to cool down a bit. Since 2016, the pace at which new miners are released has slowed considerably.
Mining is an extremely competitive game. Even if you buy the best possible miner out there, youre still at a huge disadvantage compared toprofessional Bitcoin mining farms. Thats whymining poolscame into existence.
The idea is simple miners group together to form a pool so they can combine their mining power and compete more effectively. Once the pool manages to win the competition, the reward is spread out between the pool members depending on how much mining power each of them contributed.
This way, even small miners can join the mining game and have a chance of earning Bitcoin (though they get only a part of the reward).
The market share of the most popular Bitcoin mining pools in 2020
Today there areover a dozenlarge pools that compete for the chance to mine Bitcoin and update the ledger. According tocertain reports, 65% of all Bitcoin mining worldwide is done in China due to cheap electricity, manufacturing costs and weather conditions.
The short answer is probably not; the correct answer is it depends on a lot of factors.
When calculating Bitcoin mining profitability, there are a lot of things you need to take into account. Lets break them down.
AHashis the mathematical problem the miners computer needs to solve. The hashrate refers to your miners performance (i.e., how many guesses your computer can make per second).
Hashrate can be measured in MH/s (mega hash = 1m hashes per second), GH/s (giga hash = 1b per hashes second), TH/s (terra hash = 1t hashes per second), and even PH/s (peta hash = 1000t hashes per second).
The number of Bitcoins generated when a miner finds a solution (in other words solves a block). This number started at 50 bitcoins back in 2009, and its halved every 210,000 blocks (about four years). The current number of bitcoins awarded per block is 12.5.
The lastblock-halvingoccurred in July 2016, and the next one will be this year in 2020. Once the halving occurs the reward will decrease to 6.25 Bitcoin.
A number that represents how hard it is to mine bitcoins at any given moment considering the amount of mining power currently active in the system.
Also known as how many dollars are you paying per kilowatt to get electricity?
Youll need to find out your electricity rate in order to calculate profitability. This can usually be found on your monthly electricity bill. The reason this is important is that miners consume electricity, whether for powering up the miner or for cooling it down (these machines can get really hot and noisy).
Each miner consumes a different amount of energy. Youll need to find out the exact power consumption of your miner before calculating profitability. This can be found easily with a quick search online. Power consumption is measured in watts.
If youre mining through a mining pool, then the pool will take a certain percentage of your earnings for rendering their service. Generally, this would be somewhere around 2%.
Since no one knows whatBitcoins pricewill be in the future, its hard to predict whether Bitcoin mining will be profitable. If you are planning to convert your mined bitcoins to any other currency in the future, this variable will have a significant impact on profitability.
This is probably the most important and elusive variable of them all. The idea is that since no one can actually predict the rate of miners joining the network, neither can anyone predict how difficult it will be to mine in six weeks, six months, or six years from now.
In fact, in all the time Bitcoin has existed, its profitability has dropped only a handful of timeseven at times when the price was relatively low.
The last two factors (price and difficulty increase) are the reason no one will ever be able to give a 100% accurate answer to the question is Bitcoin mining profitable?
Once you have all of these variables at hand you can insert them into aBitcoin mining calculator(as can be seen below) and get an estimate of how many Bitcoins you will earn each month. If you cant get a positive result on the calculator, it probably means you dont have the right conditions for mining to be profitable.
Before even starting out with Bitcoin mining, you need to do some research. The best way to do this, as weve discussed, is through the use of a Bitcoin mining calculator.
Bear in mind that mining costs money! If you dont have a few thousand dollars to spare on the right miner, and if you dont have access to cheap electricity, mining Bitcoin might not be for you.
Once youre done with your calculations, its time to get your miner! Make sure to go over ourBitcoin mining hardware reviewsto understand which miner is best for you, if you havent done it already in step 1. Heres a list of the most popular miners around today:
4 Star RatingView MinerStep 3 Get a Bitcoin wallet
Youll need aBitcoin walletfor your newly mined Bitcoin. Once you have a wallet, make sure to get your wallet address, it will be a long sequence of letters and numbers.
Each wallet has a different way for getting to the Bitcoin address, but most wallets are pretty straightforward about it. Notice that youll need your Bitcoin address and NOT your private key (which is like the secret password for your wallet).
When you join a mining pool, youll be given only part of the math problem to solve. The combined work of all of the miners in the pool will make the pool more likely to solve the original problem and earn the bitcoin reward and transaction fees. The profits will be spread out throughout the pool based on contribution.
Basically, youll make a more consistent amount of Bitcoins and will be more likely to receive a return on your investment.
When choosing which mining pool to join, make sure to ask the following questions:
What is the reward method? (Proportional/Pay Per Share/Score Based/PPLNSmore on that here)
What fee does the pool charge for mining and the withdrawal of funds?
How frequently does the pool find a block (i.e., how frequently do I get rewarded)?
To answer most of these questions, you can use ourBitcoin mining pools reviewor thisexcellent post from BitcoinTalk. You can also find a completecomparison of mining poolsin the Bitcoin wiki.
Once you are signed up with a pool, youll get a username and password for that specific pool, which you will use later on.
Controlling and monitoring your mining hardware requires dedicated software. Depending on what mining rig you have, youll need to find the right software.
Many mining pools have their own software, but some dont. In case youre not sure which mining software you need, you can find a list ofBitcoin mining software here. Also, if you want to compare different mining software, you can do ithere.
Connect you miner to a power outlet and fire it up. Make sure to connect it to your computer as well (usually via USB), and open up your mining software. The first thing youll need to do is to enter your mining pools address, username, and password.
Once this is configured, you will start collections shares, which represent your part of the work in finding the next block. According to the pool youve chosen, youll be paid for your share of coinsjust make sure that you enter your address in the required fields when signing up to the pool.
Heres a full video of me mining in action:
Cloud miningmeans that you do not buy a physical mining rig but rather rent computing power from a mining company and get paid according to how much mining power you own.
At first, this sounds like a really good idea, since you dont have to go through all of the hassle of buying expensive equipment, storing it, cooling it, and monitoring it.
However,when you do the mathit seems that none of these cloud mining sites are profitable. Those that do seem profitable are usually scams that dont even own any mining equipment; theyre just elaborate Ponzi schemes that will end up running away with your money.
As a general rule of thumb, Id suggest avoiding cloud mining altogether. If you still want to pursue this path, make sure to make the right calculations before handing over any funds.
Some mobile apps claim to mine Bitcoin on your phone. While in theory, this is possible, due to the low processing power phones have compared to ASIC miners, youll probably end up draining your phones battery much faster and make a very small fraction of bitcoin in return.
The apps that allow this act as mining pools for mobile phones and distribute earnings according to how much work was done by each phone.
Remember, mining is possible with any old computerits just not worth the electricity wasted on it because the slower the computer, the smaller the chances are of actually getting some kind of reward.
For reference, miningwas demonstrated in theoryon a 55-year-old computer some time ago by IBMand the result was of course, that its not worth it.
Somewhere around 2017, the concept of web mining was introduced. Simply put, web mining allows website owners to hijack visitors CPU power and use them to mine Bitcoin.
This means that a website owner can make use of thousands of innocent CPUs in order to gain profits. However, since mining Bitcoins isnt really profitable with a CPU, most of the sites that utilize web miningmine Moneroinstead. Up until today,over 20,000sites have been known to utilize web mining.
The concept of web mining is very controversial. From the sites visitor perspective, someone is using their computer without consent to mine Bitcoins. In extreme cases, this can even harm the CPU due to overheating.
From the site owners perspective, web mining has become a new way to monetize websites without the need for the placement of annoying ads. Also, the site owner can control how much of the visitors CPU he wants to control in order to make sure hes not abusing his hardware.
For more information about web mining, you canread this post.
Using the Antminer S17 Pro it costs around $4,444 to mine 1 Bitcoin around May 2019. Heres a breakdown of the calculations:
The Antminer S17 Pro costs around $1900 and generates a hashrate of 56 TH/s . The power consumption of this model is 2212 Watts. I used a standard 2% mining pool fee and $0.1/KwH for electricity cost.
Entering all of these numbers into a Bitcoin mining calculator I receive an answer that it will take me 16 months until I manage to mine 1 Bitcoin. In those 16 months I would have spent the following:
This does not include the cost for shipping, storing or cooling the miner.
Using the data from the previous question I can calculate that in one day I will be able to mine 0.002 Bitcoins.
Some people are concerned aboutwhat will happen when all of 21 million Bitcoins are minedand no more mining reward will be available to incentivize mining. This is set to happen somewhere around 2140 and the answer to this question lies in Bitcoin mining fees.
Miners get paid in newly minted Bitcoins but also with mining fees that are attached to transactions. Once all Bitcoins are mined, it is presumed that mining fees will continue to incentivize the action of Bitcoin mining. As Bitcoin becomes more popular and the mining reward decreases, Bitcoin mining feeswill become more lucrative.
While it depends on the laws of the country youre in, by largeBitcoin mining is a perfectly legal activity. Even in a few countries that do regulate the use of bitcoin, such as Iceland, mining bitcoin is still legal.
Many countries, including most African countries, have not passed any legislation for or against bitcoin, and have generally remained silent on the issue. Its important to keep a close eye on thefriendliness of countries towards mining, because the regulatory environment could change at the drop of a hat.
Theres been a lot of criticism regarding theenergy consumptionthat Bitcoin mining employs worldwide. I believe this video from Andreas Antonopoulos give a different view of how Bitcoin mining is actually optimizing energy consumption around the world:
Yes it canbut it wont do it much good. The reason is that Googles servers arent fit for solving the Bitcoin mining problem in the same way that ASICs are.
For reference, if Google harnesses all of its servers for the sole purpose of mining Bitcoin (and abandons all other business operations), it will account for a very small percent (less than 0.001%) of the total mining power the Bitcoin network currently has.
At the moment, the answer is yes. But due to the fact wevereached a technological barrierin miner development (which originally led to the centralization of mining), its now possible for new companies outside of China to take more of the market share.
Heres another great explanation by Andreas on this matter:
Now that youve finished this extensive read, you should be able to answer this question yourself.
Keep in mind that sometimes there might be better alternatives to Bitcoin mining in order to produce a higher return on your investment.
For example, depending on Bitcoins price, it might be more profitable to justbuy Bitcoinsinstead of mining them. Another option would be to mine altcoins that can still be mined with GPUs, such asEthereum,Monero, orZcash.
If you still have any questions, feel free to leave them in the comment section below. Happy mining!
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Is The bitcoin code a scam or legit I keep getting emails from them persuading me to sign up to their trading site.
They say that 189ish /$250 can earn up to 7000-$12000 in a day is possible just by trading cryptocurrency on autopilot is this true ?
How much electricity does a miner actually use to mine 1 bitcoin or any other cryptocurrency, Im from the UK and my electricity is pretty cheap than most people in the area is there any type of converter that can boost or decrease the power a miner may need ?
how many farms are needed to heat a 100 square meter house. m?
Pls everyone if i should. Invest $500 dollas. How much will i be receiving in a week
Fuck bitcoin miners, they dont deserve owning a gpu ..
Hi Everyone, thanks for the great info. It seems that besides initial equipment cost electricity cost is the biggest problem with mining at home. If I am receiving a 60% discount from my power company would that help get me better returns? Is that enough to make it worth doing?
Lets say i guessed the right number and am not using any mining company but able to perform the complex maths problem, what steps do i take to earn bitcoin with it? How do i feed the number to the mining app through my computer?
Hello any one know any real website mining at low investment
Hi.I wanted to ask, if someone has 1 equipment that gives for example 50 Thash and after some time he ads 1 more equipment of the same Hashrate. Will it be 50 plus 50 or???
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