Among the many innovations Bitcoin offers, one of it’s most important aspects is that can be acquired through mining. By combining numerous technologies, Satoshi Nakamoto, the pseudonymous creator of the Digital currency brought something unique to the new age economy. A digital currency that can be mined in a stable, deflationary rate with the help of computational machines, this way effectively battling hyperinflation.
In this guide we’ll go through how one can get coins through Bitcoin Mining and also how to do this at a profit.
How Bitcoin Mining works
Table of Contents
As seen in the Bitcoin wiki
In simple words, miners contribute their computational power to the network. This way they help verify transactions and register them to the block chain, the public ledger every Bitcoin transaction ever is recorded. About every 10 minutes a block is found by the miners and each miner is rewarded depending on how much hashrate he’s contributing to the network.
History of Mining Bitcoins
In the early days of Bitcoin’s existence, Satoshi, himself was one of the few miners. Things were much simpler back then, really few people were mining, and it was mostly done by CPU’s. It wouldn’t take long for developers to start creating GPU miners. Even in the early days of Bitcoin Mining we can see Satoshi himself discussing GPU mining. Apparently, GPUs could perform the calculations the Bitcoin Mining process requires much faster than any CPU so later on the would overtake most of the network’s hashrate. In 2010 the first Bitcoin Mining pool, was brought to life. A pool is a place where miners combine their mining power to discover blocks faster. The block reward is then split between all the miners that are contributing to the pool according to their hashes they submitted.
The Current State of Bitcoin Mining: ASICs and More
Since then, mining Bitcoin is now becoming more competitive than ever. After the meteoric rise of Bitcoin’s price in 2013 and seeing how much many of the early adopters profited by it, many started considering Bitcoin Mining as an investment. Companies started constructing and selling ASIC chips, that specialized on solving the sha-256 algorithm (the cryptographic hash function Bitcoin uses). The mining network’s hashrate was on a constant rise. The Bitcoin Mining network became the most powerful computing network to ever exist, and even up to date ASIC manufacturers are still competing to create more powerful machines for Bitcoin mining.
ASICs now hold almost all the share of the total hashrate, mining with GPU is now considered pointless since competing with ASICs that specialize on Bitcoin mining using computer graphics cards is impossible. Recently, Bitcoin cloud mining is also becoming a trend. Cloud mining is when people rent mining equipment to mine for them, looking to make profit this way. Even though cloud mining doesn’t require much technical knowledge, and is a way to mine Bitcoin with less effort, it’s not considered the most profitable solution. This guide, will be focusing on mining hardware.
Bitcoin Mining and You
By now you might be wondering, Great, but how do I get to Mine Bitcoin myself? Well, first thing you’d want to do is to see how much (and even if) Bitcoin mining can be profitable for you. Profitability and breaking even is the key when it comes to Bitcoin mining. Whether Bitcoin mining is worthwhile for you, or not, depends on many factors. You wouldn’t want to spend money to buy a machine that would make you pay more in electricity than what it makes in bitcoins in a day. This depends on how much you’re willing to invest on buying a mining machine but also on the specs of the machine. They key components you should be looking at besides the machine’s price are it’s hashrate and power consumption. The hashrate is usually measured in Tera hashes per second (Th/s) where one Tera hash is a thousand Giga hashes (Gh/s). Another component you should look at is the power consumption of your machine of course. We have a useful tool to calculate a machines profitability as well as the difficulty.
The last highly important thing you’d need to take in consideration when it comes to calculating how profitable a miner can be is the difficulty of the network. The Bitcoin mining network adjusts depending on how much hashing power is used to mine bitcoins. So if more miners start mining, the difficulty increases. And it still is on a constant rise. So taking this in consideration, what you need to understand is that if you keep mining with a stable hash power but the network’s total hashrate is increasing, after each 14 day difficulty re-target the rewards you will be getting for each block your pool finds will be slightly smaller.
So now you know how Bitcoin Mining works and also how to calculate the profitability of a Bitcoin miner. Taking into consideration that profitability is a key component of Bitcoin mining, it should now be easier for you to find out how profitable a miner is. But don’t rush and start looking for mining hardware yet, here are some things you should avoid when looking to purchase a miner.
Preorders: Many horror stories have occurred by pre-ordering mining hardware. Even though one can benefit from taking risks when it comes to mining Bitcoin, you should keep those horror stories in mind and try play it safe. One of the most widespread stories is the failure of the known Bitcoin ASIC manufacturer, Butterfly Labs, to deliver ordered miners on time. Months later after the promised delivery dates, when the they were finally ready to ship, the mining machines were useless due to the massive increase in the difficulty. So unless you’re dealing with a company that has proven to be trustworthy in the past, you should never take the risk of pre-ordering hardware that it’s creators may never manage to deliver on the promised time. And this brings us to the next thing you should avoid when you’re looking to buy a Bitcoin miner.
Scammers: You should always check the reputation of a company before you purchase hardware from them, and this shouldn’t be hard. Most ASIC manufacturing/reselling companies try to maintain a positive image and interact with the Bitcoin community through forums and communities. Checking the reputation of a company should be as easy as searching for it’s name in bitcointalk or /r/bitcoin and /r/bitcoinmining This way you can easily check the reputation of a company and see how satisfied people are with their products.
Summary: Not Everyone Needs to be a Bitcoin Miner
As you can see, Bitcoin mining is not an easy thing. I’m hoping that the myth of the lazy miner is now debunked for you. After getting to know all this, many people ask the question wouldn’t it be easier to buy Bitcoin directly? And the answer is yes. Indeed buying Bitcoin directly is easier than going through the process of choosing and running a Bitcoin miner. Investing in the price is a good solution if you don’t want to go through much effort with mining, because even if you end up deciding to buy a miner, the trouble is not done when it arrives.
Even though most companies try to make it as easy as possible to set up and run your miner it still requires some technical skill and knowledge and you might need to spend some time studying how this is done before you decide ordering a miner. What’s for sure is that mining with your own hardware is not for everyone, at least not any more. It’s like a competitive technological arms race that is constantly progressing, you shouldn’t mind if you don’t feel like using your own hardware to mine Bitcoin is the thing for you. If you’d still like to give mining a shot though, keep an eye for our upcoming introduction on Bitcoin cloud mining.