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 GlobalCfdFinance .