How To Mine Bitcoin
What is Bitcoin Mining & How Does it Work?
Bitcoin has a fixed supply of 21 million coins. These coins need to be created and distributed (fairly?). For this to happen, bitcoin must be mined. The word “mining” is an analogy borrowed from the process of extracting precious metals as they need to be mined from the ground at the cost of labor and energy.
To mine Bitcoin, computers spread around the world compete to solve cryptographic puzzles at the cost of processing power and energy. Any miner that successfully solves the puzzle first is rewarded with some additional bitcoin (called the block reward). These rewards pay miners for securing the network, verifying transactions and adding blocks to the blockchain.
Currently the mining reward is 6.25 bitcoin. This rate of newly created bitcoin happening approximately every ten minutes is cut in half every 4 years. While we started at 50 bitcoin in 2009, the rate was cut to 25 in 2012, then to 12.5 in 2016, having reached 6.25 by now. It’s estimated that this will continue until 2140, by then every single bitcoin will be mined. Now that a little more than 18.6 million bitcoins have been created already, only about 2.4 million coins are left to mine.
Read the Guide: What the F&ck is Bitcoin?
Watch the video: Blockstream: The Benefits of Investing in Bitcoin Mining
Can you mine your own bitcoin?
At its basic level, Bitcoin mining is the provision of procession power (hash power) to the open source Bitcoin network. Therefore, everyone can participate in Bitcoin mining. Early on in Bitcoin’s history individuals have been able to compete for block rewards with a regular computer and later with GPU’s. But today this has become pointless, because the difficulty of mining Bitcoin has significantly increased over time. The Bitcoin network’s aim is to have a cryptographic puzzle solved approximately every 10 minutes, regardless of the hash power provided. Therefore, the more hash power is provided to the network, the more difficult these puzzles become to solve (difficulty rate). Consequently, they have become ‘unsolvable’ for at-home computers and GPU’s, as they are simply not powerful enough anymore.
Today, application-specific integrated circuit (ASIC) mining machines are used to mine Bitcoin. Miners connect hundreds of these machines to so-called mining farms to provide enough hash power to earn a steady flow of block rewards. As an individual in possession of only one or a few ASIC miners, one has to cooperate with other miners in mining pools to be able to provide enough hash power. By combining the hash power and sharing the payouts among all participants, miners can ensure a continuous flow of bitcoin block rewards.
Is mining harmful for the Environment?
Bitcoin mining and its energy consumption have caused indignation around the globe. And it is true: Bitcoin mining consumes vast amounts of energy. But to answer the title question, two points have to be considered: Firstly, what kind of energy is Bitcoin consuming (energy mix)? And secondly, is the energy consumption necessary and justified?
The first point is answered here (p.26) and here. The second point is tightly connected to Bitcoin’s proof-of-work (PoW) mechanism. Figuratively speaking, PoW requires computers to find a needle in the haystack. Miners must execute a hash function billions of times until one of them finds the needle, the correct answer. This in essence seems to be a pointless, energy consuming task.
But finding this hash solution is paramount to Bitcoin’s functionality. By expending energy, miners ensure that the Bitcoin network remains functional. The non-centralized bookkeeping of the Bitcoin network is backed by its total hashing power, by the sum of all the energy expended. In other words: to later change the accounting, the ledger on the Blockchain requires the same amount of energy as has previously been used to build the blockchain. Bitcoin’s energy consumption therefore legitimizes itself from the fact that it enables unforgeable costliness. Through the PoW mechanism, Bitcoin converts energy into trust that cannot be undone.
Understanding this concept leaves it to the reader to decide if the benefits Bitcoin provides are worth its energy consumption, or not. It’s also worth considering why Bitcoin mining makes the headlines in the media and almost every other industry on the planet doesn’t? Whilst mining Bitcoin requires a lot of energy (often stranded and renewable energy), the alternative systems (ie: Global banking system). Preston Pysh infact argues that Central Banking may be the root cause of global climate impacts.
Watch the Video: Why Bitcoin Will Green The Planet
How much can you earn?
Mining profitability is dependent on 4 variables. Energy costs, hash power provided (hardware equipment), the current price of bitcoin and the current block reward. The most important of these are the energy costs, which strongly vary depending on the geographic location. The other 3 variables are similar for all miners. Therefore, miners tend to set up their equipment in places where energy costs are comparatively low making the mining business more profitable.
Besides the energy costs miners are also strongly dependent on the current Bitcoin price, as they have to sell parts of their earned Bitcoin to pay for running costs, mainly for electricity and equipment. In times when the Bitcoin price is low for an extended period of time some miners with comparatively high energy costs will turn off their mining equipment in order to avoid generating net losses.
The newest generation of ASIC miners costs around $11,000 USD per piece and provides 95 TH/s with an energy consumption of 3250 W. The price of the ASICs vary with the price of bitcoin. Calculating the miner’s profitability with energy costs of 0.20 US$ per KWh we see that one device makes between 10$-20$ a day, depending on the Bitcoin price.
Watch the video: The Economics of Bitcoin Mining
How to start mining bitcoin
Before getting into mining, some basic evaluations and calculations have to be made. The most important is the decision on what blockchains one wants to mine on. The requirements for Bitcoin miners differ from miners for other blockchains. Further, one should have a basic idea of the local electricity costs and calculate if mining Bitcoin can be done profitably locally.
Steps to get started:
- Step 1: Procuring a Bitcoin mining rig. The first step into mining Bitcoin is buying the proper equipment. This is one of many webpages to purchase Bitcoin miners. Take performance (hash rate), consumption of electric power and price into consideration before making a purchase.
- Step 2: Set up a Bitcoin wallet, where you can receive the mined Bitcoin. If you’d like to set up a full wallet which downloads and synchronizes the whole blockchain on your computer, try Bitcoin Core.
- Step 3: Join a mining pool. If you only possess one or a few miners and want to generate a steady cash flow from your mining activities, it is recommended to join a mining pool. Here is a comparison of the largest pools.
- Step 4: Get a mining programme for your computer. Mining software delivers work to your mining machines and connects you to the Blockchain and Bitcoin network. One possibility among many is the NiceHash Miner.
- Step 5: Start Mining. Link your miner to your computer, install the mining software, fill out the wallet and mining pool information and you are good to go.
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