What is Bitcoin Mining?

Cryptocurrency, Bitcoin, and the blockchain. In recent years, we’ve heard these terms thrown out more times than thought possible. Whether it’s cloud-based platforms like Coinbase or other exchanges like Binance, the market has exploded with a surge of new activity. Depending on the weather, bitcoin is either touted as the new frontier or the plague on regulated markets.

How does Bitcoin mining work?

There are three primary ways to obtain Bitcoin: accepting them as payment for services, buying them on an exchange, or mining them. Through mining, users add transaction records to the public Bitcoin Ledger dubbed the Blockchain. Every coin exchange is kept track of in a publicly available, distributed document that contains information about valid transactions.

For many young investors, mining is seen as a very attractive opportunity, since cryptocurrency is awarded for one’s additions to the ledger. The practice is incentivized because mining supports, legitimizes, and monitors the bitcoin network. In other words, mining functions as the backbone of the cryptocurrency. Since anyone can become a miner, bitcoin is considered a decentralized cryptocurrency: There’s no one central bank or government regulation that oversees the production of Bitcoin or flow into the market.

What are Bitcoin block rewards?

Block rewards are granted to the miners that discover a complex hashing puzzle first. The more you mine, the more you earn in the form of Bitcoin, since the probability of discovery is directly correlated to the proportion of mining you do. Every 2,000 blocks, the difficulty level of mining is adjusted. The more miners competing for a solution, the more difficult the problem becomes, while the opposite is true as miners exit the market.

New coins are released into the market based on how many transaction blocks are added to the ledger. Also known as the “block reward”, the amount of currency introduced is halved every four years; in 2009, it was 50 coins and now until 2024, it will remain at only 6.25. As the numbers of coins entered into circulation decrease, the currency becomes much more valuable over time. It’s believed that all Bitcoin in existence will be mined by 2140.

How do you mine for Bitcoins?

If you’re interested in mining, there’s no better time to start than now. As the cryptocurrency increases in value, it’s important to get your foot in the door sooner rather than later. To start mining, you’ll need some technical know-how and a few specialized computer components. Mining for coin requires sophisticated machinery and extensive computational power, energy, and graphical processing capabilities to compute mathematical solutions. With that said, let’s dive into a few key requirements below!

Hash Rate and Power

Ultimately, the system you select depends on two key factors: hash rate and energy consumption. Hash rate refers to the number of computations a computer can complete every second. It’s a mission-critical parameter since a higher hash rate increases your chances of solving the mathematical problem and collecting rewards.

Since the bitcoin functions are designed to be unpredictable, the best way to find an output is by generating as many inputs as possible in a short time frame.

Hash rates are measured in mega-hashes per second (MH/s). Standard hash rates for mining can vary significantly, ranging between 336 MH/sec to 14 million MH/s.

Secondly, your system will require more electricity since the hardware is constantly performing intensive operations. Consider how much electricity you’re willing to use, as a higher monthly bill could wipe out any gains you make.

Necessary Hardware

In the early days, many were drawn to cryptocurrency since it represented a break from established governmental regulations and tax authorities. Now, bitcoin has grown so popular that miners are extremely competitive.

Modernly, miners use high-end graphics cards and dedicated processing chips to increase their mining power. Since graphics cards consume much less power than standard CPUs (Central Processing Units), miners are nearly 100 times as productive as they were before.

Even more recently, some have invested in dedicated mining computers to increase their capacity exponentially. Graphics cards, servers, cooling equipment – you name it, they have it.

No matter your resources, you’ll need a few components to get started.

GPU

The CPU is your computer’s dedicated processing unit that does the heavy-lifting by performing calculations. Of course, CPUs are no longer sufficient to mine: No matter how powerful your CPU is, you could mine for years and never receive a single coin.

That’s where GPUs, or Graphical Processing Units, come in. Though they were originally designed to calculate complex visual information for video games, they’ve now come in vogue for mining.

While the standard CPU provides you with less than 8 MH/s, a GPU can reach over 800 MH/s.

FPGA and ASIC

In addition to a GPU, miners rely on FPGAs or Field Programmable Gate Arrays. FPGAs are specifically made for mining, producing a high hash rate without consuming loads of power.

FPGAs work in tandem with ASIC, or Application-Specific Integrated Circuits. The microchip can provide a near 100 times increase in hashing speed and further reduce electricity consumption.

Mining Software You’ll Need

Depending on your hardware, you may need to install a third-party bitcoin mining software; however, some ASIC chips are plug-and-play, coming with everything pre-installed.

Most mining-specific hardware will provide detailed specifications on the mining software that they’re compatible with. The most popular mining software includes Bitcoin Miner, CGMiner, BFGMiner, and EasyMiner.

Is Mining Bitcoin Worth It?

As the market has exploded in popularity, it’s become much more difficult for a single miner to cut a profit. Mining requires a significant upfront investment: graphics processing chips, FGPA integrated circuits, and ASIC microprocessors – that’s not to mention any potential uptick in your monthly electricity bill.

Though profits continue to rise, new coins tend to end up in the pockets of the largest mining operations out there. It’s hard for a new market entrant to become a real competitor.

When bitcoin mining was first launched, the difficulty was 1 – now, it’s over 16 trillion.

If you’re serious, you’ll want to invest in serious hardware and perhaps a cooling unit to be competitive.

How Much Do Bitcoin Miners Make?

It really depends on how much a Bitcoin is worth relative to the costs needed to mine them. Profitability changes constantly as the difficulty of hash problems waxes and wanes. Bitcoin remains a low-risk yet high-reward market for investors willing to front the initial costs.

Frequently Asked Questions