Are you seeking to learn what Bitcoin Mining is all about? Bitcoin uses a process called Bitcoin Mining to create and distribute new Bitcoins, as opposed to in our traditional fiat systems, where we trust governments to do this task. Not only does mining generate and circulate new Bitcoin, but it is also responsible for verifying user transactions.
One interesting fact is that only 21 million Bitcoin will ever be in existence. With 17.4 million Bitcoin currently in circulation, what’s even more intriguing is how new Bitcoin gets created and issued into the network.
What is Bitcoin Mining? Bitcoin mining is a process that involves using a distributed pool of computational power and a consensus algorithm for verifying transactions and distributing new Bitcoins into the network.
Unlike our current financial systems which heavily rely on centralized databases and third parties for verifying transactions, Bitcoin Mining uses computing power voluntarily offered by miners.
Miners are required to use a unique algorithm to prevent double-spent transactions from occurring on the Bitcoin network, which is a massive crisis in today’s fiat payment gateways.
Anyone can participate in Bitcoin Mining with the proper mining hardware and software configuration. While in the beginning this could be done with almost any at-home computer, over the last 10 years, the hardware involved in Bitcoin Mining has evolved into much faster chipsets made explicitly for one purpose and one purpose only, Bitcoin Mining.
How Bitcoin Mining Works
In 2009, the first block of Bitcoin was mined by its anonymous core developer who goes by the code name Satoshi Nakamoto. Back then, the Bitcoin network was small with minimal users, and mining Bitcoin on a laptop/desktop using a central processing (CPU Mining) unit was common. Early adopters reported earnings of around 50 BTC using nothing but a laptop.
It wasn’t long after the start of this digital gold rush that someone else discovered graphics cards (GPU) to be more efficient, so, in 2010, a code got released that enabled users to start using GPU to mine Bitcoin. Once GPU mining for Bitcoin launched, the mining difficulty made CPU mining for Bitcoin no longer feasible. However, GPU mining faced the same limited hardware capabilities as the CPU did when a prototype Bitcoin miner was created, bringing an even more efficient chipset to the scene.
The first versions of these Bitcoin Miners hit the market in 2013. ASIC, or Application Specific Integrated Circuits, as they call them are some of the most efficient chips used in today’s Bitcoin Mining. Now, with Bitcoin continually gaining popularity year after year, 1000s upon 1000s of ASIC miners have been deployed globally, and so it’s almost impossible to mine Bitcoin with any other chipset.
Bitcoin Mining has this unique dynamic called Mining difficulty, and as more miners participate in mining Bitcoins, it increases with the network. This increase in difficulty is what created the demand for faster mining hardware, and will continue to grow as more Bitcoin adoption happens.
Now that you have this brief understanding of the evolution of Bitcoin Mining, let’s dive deeper into what miners are actually doing.
What is Bitcoin Mining Actually Doing?
Bitcoin is a decentralized currency meaning no bank or authorities are in charge of exchanging and distribution of Bitcoin. Whereas in traditional fiat currencies all credit/debit cards payments are processed using third-party services like Visa and Mastercard, Bitcoin instead uses a distributed network of combined computing power running specialized software for verifying all of its user’s transactions, and evenly distribute new Bitcoin into its network.
Each time a user sends Bitcoin to another user, whether they are sending Bitcoin to a friend or using it for a transaction to buy goods, it signals the miners on the network that an exchange is needed. The wallet addresses involved in the transaction are placed in a “mem pool” along with any other Bitcoin transactions waiting to be validated. Senders of the transaction pay miners a small fee for this validation service.
Once a transaction gets picked up by a miner, the data is then temporarily stored along with any other transactions being processed to form a 1MB size digital block. Before each block of transactions can be officially confirmed valid, there’s a long hexadecimal number called a target hash assigned to it that must be guessed correctly using only mining hardware and software configured with a unique proof of work hashing consensus algorithm. This unique algorithm makes pieces of data challenging to generate yet easily verifiable which is perfect for securing and verifying transactions.
The miner or mining pool lucky enough to hash this unique number correctly first while simultaneously confirming the transactions of the previous block against the transactions of the current block wins the block reward (currently worth 12.5 BTC). The block then awaits to be permanently recorded on an open ledger called the blockchain which is a complete history every Bitcoin transaction.
Once the block has had 1 – 6 additional blocks confirmed on top of it, the funds of each transaction are released and it is no longer reversible (double-spend problem solved). The miner or mining pool that was lucky enough to win the block reward has to wait for 100 confirmations before they receive the full block reward, currently set at 12.5 Bitcoin. The same lucky miners also earn the transaction fees that confirmed valid during the block’s timestamp period.
So you see, mining is verifying transactions in groups called blocks. However, miners have to double-check the work of the previous block before they can build another block of transactions. Once a miner solves a block, the other miners on the network have to confirm the work is indeed valid using proof of work for validation.
Once enough confirmations have been satisfied by the other miners running on the network the mining pool who solved the block is then paid the full block reward plus any processed transactions fees as a bonus. This block is officially valid and is then permanently submitted to the blockchain which connects all the previous transactions to future transactions in a more secure manner than our current gateways systems.
This process all happens autonomously, using computing hardware and special mining software in which anyone can participate. As I mentioned briefly earlier, ASIC miners are now the standard chipset used in today’s mining, which may not be suitable for home use due to its electrical requirements.
Block Reward & Halving
I also want to highlight a few other facts about Bitcoin Mining to give the full picture of how all this works. The first thing I want to mention is that yes the current reward for solving a block is worth 12.5 Bitcoin, but this is set to drop by 50% every four years, which is known as block halving.
You see Block rewards were much higher when Bitcoin Mining first started to attract more miners to the network while its user base was small and needed help to grow. As the network continues to grow over the years, the rewards step down which creates a limited supply for purchase meaning as the block rewards go down, the price of Bitcoin should go up.
Bitcoin Mining Pools
The second fact about Bitcoin Mining pertains to the use of a mining pool. Mining Pools allow groups of miners to pool together their computing hardware in an attempt to increases their chances of solving a block. In the early stages of Bitcoin Mining, mining pools weren’t a requirement as users could easily find blocks due to the low level of mining difficulty.
Over the last ten years, the difficulty has increased so much that even with the help of ASIC hardware it is near impossible to win a block solo mining. To participate in mining Bitcoin with a pool is a rather simple task to do. All that is need from a miner to participate is an account at a mining pool and pool address to point the mining hardware too.
If a block is found and confirmed valid by your mining pool, the reward is equally divided across the miners who did the work and is proportional to the amount of computing power each miner has pointed at the pool. Meaning if your accumulative computer hashrate makes up 25% of the mining pool’s total hashing power, then you earn 25% of the rewards. Please keep in mind that mining pools do charge a small fee for this service.
List Of Bitcoin Mining Pools:
- Kano CKPool
- BitClub Network
- BTCC Pool
- BW Pool
- Solo CKPool
The final thing I wish to mention is Mining Difficulty which is a dynamic that regulates how fast new blocks get submitted and uploaded to the blockchain. Bitcoin has this strict rule that valid blocks must be generated on an average of every ten minutes or 2016 blocks total every two weeks. This ensures that no hacker can orchestrate mass amounts of computing power to mine up all the Bitcoins before the network has a chance to mature.
The main issue with our current financial systems is that there are no limits set in place. Whenever a government decides to print more money, it causes inflation to that currency’s value, and therefore it becomes worth less over time. Whereas with Bitcoin the mining difficulty is automated through the network and can not be altered by any government or authority, so Bitcoin’s circulating supply will always be limited.
Bitcoins mining difficulty adjusts every 2016 blocks so that it averages out to two weeks total. If the miners on the network find 2016 valid blocks faster than the two weeks set by Bitcoin’s built-in protocols, then the difficulty of solving a block increases accordingly to match the two-week average. However, if the 2016 blocks take longer than two weeks, then the difficulty decreases accordingly to stay inline with Bitcoins two-week average cycle.
In conclusion, it is said by many that this new way of digital banking will change how the world does business. Most of today’s current financial infrastructure is built on technology that has been long outdated and so blockchain along with cryptocurrencies like Bitcoin plan to provide the solution to a lot of its current problems.
How To Get Started Mining Bitcoin
When it comes to investing in Bitcoin Mining, there are two ways in which a person can go about it. The first option involves buying and operating the equipment at home whereas other options allow users to host. Both come with their own set of precautions so let’s discuss both in further detail.
Steps To ASIC Mining Bitcoin:
Calculate Profits– To see if Bitcoin Mining is profitable at your electric rates, it best to calculate profits before you decide to purchase any hardware. Mining calculators like Whattomine and Cryptocompare allow users to enter in their utility rate and hardware hashrate and power consumption. These calculators then provide you with an estimated return on investment based on the data you provide them.
Mining Requirements– Bitcoin ASIC miners these days require a 220v outlet on its own dedicated circuit. Hiring a licensed electrician to size the wire and install the breaker properly is recommended if you’re not an electrician. Cooling ASIC miners is another major issue with most mining operations. Installing in-line fans and circulating fresh air is the most cost-effective way to keep your hardware from overheating and crashing. Lastly, make sure to have access to a high-speed internet connection to be able to plug into the miner directly as running over wifi has reported issues.
Purchase Bitcoin Miner – Buy the latest hardware from trusted manufacturers with great support and warranty. Make sure the manufacturer of the equipment has a reputable name and has been reviewed by several other sources. Sometimes ASIC mining companies come out of the woodworks with miners that promise high profits which are fake sites to steal people’s money. Some of the best ASIC miners come from Bitmain and Ebang in China.
Connect Power and Internet– Connect the power supply to the miner and make sure all connections are properly secured. Each ASIC miner also comes with an ethernet port for an internet connection.
Locate Miner IP– Login into your local network’s router and locate the IP address of the miner. Once you have the miner IP address, log in by entering the address into a browser and wait for a login screen to pop up. Every ASIC miner has a default username and password to log in.
Get A Bitcoin Wallet Address– Create a wallet so that the miner has an address to receive mining payout earned through the hardware. BRD wallet offers wallet solutions for several coins and is offered in both Apple and Google app stores. Don’t forget to backup your wallet and write down any passwords before proceeding.
Get A Bitcoin Mining Pool Address– Pick and choose any pool you would like from the list; slushpool is the most popular with its phone app monitoring features. Once signed up for a pool, there should be pool addresses listed on each site, be sure to copy the address closest to your mining hardware operation.
Configure Miner with Pool and Wallet Address– To configure an ASIC miner to mine is rather easy, copy and paste the Bitcoin Wallet address and pool address into the miner main configuration panel and hit save. Once finished the miner should begin connecting to the pool and hashing on the network. Once your pools hit a block, you’ll start earning Bitcoin Mining rewards.
Cloud Mining is an alternative way for investors to participate in earning Bitcoin Mining rewards without actually possessing any hardware. Cloud Mining services have large data centers typically located in areas that have a cooler climate and cheaper utility rates. This advantage allows these companies to mass deploy large Bitcoin operations across the globe and offer investors shares or cloud mining contracts as service.
One of the main drawbacks to owning and operating ASIC mining equipment is they tend to radiate lots of heat. Having to maintain the equipment becomes another issue for those who aren’t all that computer savvy, so Cloud Mining offers an easy solution to be a part of this new trend.
Cloud Mining Service Types:
Cloud Mining Companies like Bitclub allow users to purchase shares that are then used to deploy hardware on the user’s behalf. Cloud Mining Contracts typically come in 2-3 year terms. Please note that Cloud Mining companies charge a fee for this service which pays for electricity and any maintenance to the equipment.
Additionally, you can rent mining equipment from companies like Bitdeer who are sponsored by Bitmain.
One final note about Cloud Mining is that not all services will have investor’s best interest at heart. Some Cloud Mining Companies have hidden fees that allow certain services to alter contracts midstream to protect the services and not the investors. As with all investing, if you chose to participate in Cloud Mining, be sure to do your research on the company you are investing in, their commitment to their investors, and the reasonable likelihood of any payout promises made.
Bitcoin Mining Hardware
Some of the best ASIC miners are engineered and manufactured in China. However, there are only a few companies currently who are capable of bringing these machines to the mass market while maintaining a level of quality.
Bitmain S17 Bitmain has been a leader in ASIC miner manufacturing ever since the beginning and continues to impress the mining community with its latest version the S17. Although this model is not yet on the market, it is set to be released for its first batch of sales soon. No reports of what this miner is capable of just yet, but Bitmain has released that its plans for this new model involved spending more focus on bringing power consumption down by near 30% over its predecessors the S15 and S9 miner.
Ebang E11++ This is the latest miner from Ebang, one of the leaders in mining hardware companies in the mining market. The new miner comes integrated with powerful 10nm and hashes at speed up to 45Th/s. Released onto the market in October 2018, the miner has two fans to regulate its temperature and keep it within a safe range while only consuming 1,980 Watts at 220v. This multi-purpose miner can mine Bitcoin and several other cryptocurrencies that use Bitcoins sha256 hashing algorithm.
Canaan Avalon Miner 10 Canaan is another China-based company that produced the first-ever ASIC Bitcoin Miner and is soon to release their latest model the Avalon 10 series, which has been refined over the years. The new A 10 is said to hash around 56Th\s while only drawing 1763 watts, making this a prime contender for the fastest and most efficient Bitcoin miner the market has ever seen.
Bitcoin Mining Software For Gaming PC\Laptops
If your laptop or PC is equipped with a graphics card(GPU), there are still ways you can start mining to earn some Bitcoin. New software allows computers to GPU mine other cryptocurrencies called Altcoins. Altcoins are the other cryptocurrencies who are very much like Bitcoin in some ways with some nuances here and there.
However, what’s intriguing about some of these altcoins is the fact that they are mined in the same fashion as Bitcoin. Moreover, these altcoins can be traded for their monetary value in Bitcoin on a number of cryptocurrency exchanges.
To do this manually can be a tiring task but with the help of new mining software, this entire process is automated.
Newer mining software can run benchmarks on any computer hardware to see which altcoin is the most profitable to currently mine.
Once the software benchmarks are complete, the miner begins mining the most profitable altcoin. Whenever your hardware earns block rewards for the altcoins mined, they are then auto exchanged for their current exchange value in Bitcoin.
Cudo Miner – This software is designed to suit both advanced and amateur miners alike. It is installed on the laptop to take advantage of the unused power and at the same time can be used by miners who have large GPU rigs.
Awesome Miner – This software allows users to connect ASIC and GPU miners through its software for monitoring and profit switching adjustments. Setup can be a bit of a task, but all-in-all it’s excellent working software.
Minerstats – This new software enables you to check each of your workers closely to see the essential facts about their mining activity. With this software, you can quickly check your daily earnings, max temperature, fan speeds, and your mining hardware’s current efficiency.
Nicehash – This software runs on a marketplace where your computer’s hash power is rented out, and you get paid in Bitcoin. Its major drawback is that earnings can be lower when fewer people bid on renting your hashpower.
Is Bitcoin Mining Still Profitable?
The short answer is yes you can make money through Bitcoin Mining. Over the years, many miners have made a fortune from mining this digital coin. However, that doesn’t imply that everyone can invest in Bitcoin mining and see profitable results.
You must have access to cheap electricity while running the latest mining hardware if you wish to make a success of your investment. Many experienced miners say that this is the secret behind the success achieved by larger operators who have access to newer hardware before anyone else.
For instance, companies like Bitmain and other ASIC manufacturers have been severally accused of using the latest technology for mining Bitcoin before anyone else. Getting the latest hardware as soon as it comes out seems to be the trick for home miners to make sure they get positive results for their mining efforts.
Bitcoin mining FAQs
Some of the questions most potential Bitcoin miners usually asked are answered below:
How much electricity is needed for Bitcoin mining? Bitcoin mining is a power-consuming exercise. It has been estimated that energy consumption makes up 90% of Bitcoin mining cost, an estimated 30 terawatt-hours. In 2018, Cointelegraph wrote that: “The Bitcoin network currently consumes about 2.55 gigawatts (GW) of electricity per year; to put that into perspective, the entire country of Ireland has an average electricity consumption of 3.1 GW.”
How much does it cost to mine 1 Bitcoin? Your mining location determines the cost of mining 1 Bitcoin. Electricity is the primary determinant of the cost, and electricity cost varies from one country to another. Elixe Fixtures analyzed the cost of mining a Bitcoin in 2018. The published analysis gives an estimated cost of mining a Bitcoin in some 115 countries.
Is Bitcoin mining legal? The legality of Bitcoin mining is subjective. While some countries such as Turkey, the United States, the United Kingdom, Italy, Canada, and a host of others consider both the coin and its mining as legal, some other countries frown on Bitcoin and anything associated with it, such as its mining. In the latter group are countries such as China, Bolivia, Ecuador, and several other countries. Hence, if you are mining this coin in countries where it is considered a legal entity, it is legal. Likewise, it is illegal where the coin is considered illegal.
When will Bitcoin mining end? At present, over 17.6 million of the 21 million estimated number of Bitcoin to be in circulation has already been mined, according to Blockchain.info. This implies that there are less than 4 million Bitcoins to be mined before the mining comes to a close.
At this rate, it is estimated that Bitcoin mining will end sometime in 2140 after 21 million of the digital coin has been successfully mined by dedicated miners.
However, it has been planned by Bitcoin’s original core developer that by the time Bitcoin Mining has reached this point, the transaction fee rewards will be enough to continue incentivizing miners to stay connected to the network.
If you have any questions about Bitcoin Mining or Cloud Mining, please drop a comment below.