Over the past few years, the popularity of Bitcoin has grown exponentially. People are still interested in using a coin to make settlements, trade or invest. The price trend indicates a promising recovery after the largest cryptocurrency asset fall in history, which was preceded by a record high of $ 20,000. The highs of recent years have brought new players to the market who would like not only to invest in bitcoin, but also to mine it.
However, the process of creating bitcoins is not as simple as printing banknotes. Fiat money is subject to strict regulation by the central authority, which is responsible for issuing new units and destroying old ones. Bitcoin, along with most other cryptocurrencies, is generated using a process known as mining. It is about mining bitcoin that will be discussed in this article.
- What is Bitcoin Mining
- What Affects on Bitcoin Mining
- How to Mine Bitcoin
- Bitcoin Mining Equipment
- Bitcoin Mining Program
- Bitcoin Mining Calculator
- Bitcoin Cloud Mining
- Bitcoin Mining on a Home Computer
What is Bitcoin Mining
Bitcoin mining is the process of issuing a new cryptocurrency, which is mined by the nodes involved in confirming the transaction and entering them into the blockchain.
The mining process involves the introduction of new coins into circulation and is one of the key elements that allow Bitcoin to work as a peer-to-peer network, without the need for centralized management.
Mining itself is the basis of the Bitcoin network, the participants of which ensure its safety. Thus, the role of miners is to protect the network and process transactions through calculations, as they are solved, the blocks of bitcoin are connected together.
In other words, Bitcoin miners compete with each other in solving complex calculations. Therefore, as soon as a network member finds a solution for a new block, he translates it on the blockchain, and everyone else checks the decision and confirms the reliability of the result.
Thus, it is impossible to add a new block, ignoring the process of finding a valid value, due to which, in turn, a solution is generated. These actions are achieved through the use of the Proof-of-Work consensus mechanism (proof of work), and are intended to create an honest playing field among the miners involved in mining.
One of the problems of Proof-of-Work is that for competitive mining, participants need to have expensive equipment that consumes large amounts of electricity. And although it is precisely thanks to this that network security is guaranteed, the operability of such equipment is aimed only at certain cryptocurrencies.
While Proof of Work may not be the most effective solution, it still remains one of the most popular methods for reaching consensus on the blockchain.
What Affects on Bitcoin Mining
Due to the high cost of equipment for mining bitcoin at a relatively low price for a coin, mining can bring decent profit only if there is free access to a cheap or free outlet. But the size of the miner's profit depends not only on this component, although the cost of paying electricity bills takes up most of the revenue.
Among other factors affecting the potential profit margin: the halving of the reward to miners for the mined blocks and the bitcoin network hash rate.
The income from the extraction of coins is affected by the amount of remuneration received by the miners for the work they have done, which tends to decrease every four years.
Bitcoin halving (halving the reward) is an event that directly affects the reward for mining new blocks by halving it. That is, miners after a certain time begin to receive 50% less than the previously proposed Bitcoin reward amount, while their calculations do not change, but rather become more complicated.
Note that the Bitcoin mining reward is divided in half every 210,000 blocks or about once every four years. This will happen until the maximum number of Bitcoin equal to 21 million is generated on the network.
The process of selling halving limits the supply of new coins, which affects the price of cryptocurrency. So, if the demand for the coin is still high, then the price of BTC is more likely to respond with growth.
The exact date of the halving is not yet known, since the time taken to generate new blocks in the network is not fixed. But on average, it takes about ten minutes to extract one block.
Historically, this event has a positive effect on the price of bitcoin in the long term. The main reason is the simple law of supply and demand, that is, as the number of available BTC decreases, the product becomes more valuable.
Two previous halvings have led to extreme volatility in the Bitcoin market. In 2012, the cost of 1 BTC per year increased by 8000%, and in 2016 by 2800%.
As you can see, there is a direct relationship between the bitcoin halving and the increase in the price of an asset. But do not forget that other factors appear on the market that can affect the price of bitcoin. In this regard, investors should not lose their vigilance when approaching an event, so that at the right time they will be able to correctly respond to market movements and make informed decisions.
Also, bitcoin halving directly affects miners, because it is they that are affected by a decrease in the reward in BTC. Some participants in the process do not withstand the conditions of rewarding reduction, and therefore stop production. But most continue mining in the expectation that in the end, the cost of BTC will rise to higher levels.
The hash of the network is of particular importance to miners in terms of their profitability. The profitability of a miner ultimately depends on the size of computing power that it brings to the network. As the number of miners grows, the complexity of calculations increases accordingly.
In a situation where the hashrate of the miner remains unchanged, and the aggregate capacity of the network continues to grow, the share of participation of this miner relative to the network decreases.
Hashrate is the speed with which special equipment calculates. The size of the miner's profit depends on the size of the hashrate owned by the miner.
For comparison: over the past 12 months, the hashrate has doubled: from less than 47,000,000 TH / s to more than 92,000,000 TH / s, with a maximum of 114,000,000 TH / s recorded on October 23.
Obviously, this is an endless cycle of growth in computing power, which is accompanied by a complication of the process of calculations that must be performed to get rewards in the process of mining bitcoin.
So, the prices for Bitcoin mining equipment are rising following the demand, while the mining sector continues to replenish with new participants.
This means that optimism regarding profit from mining does not fade, new equipment continues to be released to the market, while manufacturers seek to modernize their own designs. At the same time, an increase in investment capital in the mining area is expected, which is accompanied by constant investments in the creation of large data centers, under the leadership of such giants as Bitmain and others.
How to Mine Bitcoin
Before embarking on Bitcoin mining, you should think about how profitable it is today to mine BTC in such a competitive space. The probability of winning in checking each transaction is approximately 1:13 trillion and decreases with each new transaction.
For solo miners, the only way to successfully compete in a race is to combine power with other participants by joining mining pools. Although technically a miner can try to mine bitcoins on their own, there is only a small chance that his equipment will be able to solve the complex calculations necessary to receive a reward.
But still, what is needed in order to join bitcoin miners? So let's get it in order. Next, we give the steps that each beginner needs to go through immediately before starting the process itself.
The Choice of Equipment For Mining
Bitcoin mining is impossible without special equipment, so the first thing to do is choose the right device. ASIC miners remain in priority, as this equipment was created specifically for bitcoin mining and is equipped with the best characteristics for profitable mining.
Creating a Bitcoin Wallet
Also, in order to store potential profit, you need to create a Bitcoin wallet. In principle, bitcoin is supported by almost all wallet service providers, so there should be no difficulty finding the right one.
When selling coins, with a sale in the long term, it is recommended to use paper or hardware wallets, as they are more reliable compared to other options.
Bitcoin itself is a very volatile cryptocurrency, and although this year the coin managed to increase its value by 3 times, it can drop sharply in price at any time, as happened before. Therefore, with the intention of walking the mined BTC, all possible risks must be taken into account.
Choosing a Mining Pool For Bitcoin
The next step is to register in the pool. On the Internet, there is a wide variety of mining pools, which differ only in payment methods (shared and proportional models) and the percentage of commissions charged for operations.
Even without looking at the pool reviews posted on the Internet, trusted services can be determined by the number of active miners tied to them.
And although choosing a popular mining pool for its size can be a tempting idea, do not forget about the basic concept of the blockchain — decentralization, which so attracts many to the crypto space.
So, after completing all these steps, you can directly connect the equipment to the network in order to get the first profit from mining Bitcoin.
Bitcoin Mining Equipment
No matter what mining equipment will be used, it is characterized by excessive heat transfer. Therefore, for normal operation of the equipment, it is recommended that it be installed in a room with good ventilation, so that heat can be easily dissipated.
If Bitcoin mining occurs in cold areas, then you can follow in the footsteps of smart Siberians and use the excess heat from BTC mining to heat your home. But it is worth considering the nuance that some devices are very noisy, and therefore their installation in a residential apartment will be inconvenient.
One simple but expensive way to start bitcoin mining is to buy an ASIC. These devices have been specially designed for mining BTC, and, as a rule, have the maximum return on investment.
However, ASICs are expensive and are developed for a specific algorithm, in this case SHA-256. Therefore, the owner will be able to use it for mining only those cryptocurrencies based on this algorithm. That is, if, say, BTC drops sharply in price, there will be few options for salvation.
ASIC miners are very famous and appreciated in the crypto space, since they produce a relatively larger number of cryptocurrencies than competitors (GPU and CPU) in the same time frame.
As ASICs developed, their dominance increased, causing a storm of indignation in the cryptocurrency community.
Since ASIC miners are very powerful devices, they deprive other network participants using a GPU or CPU of the ability to mine certain cryptocurrencies, since the former do the same job several times faster.
Today, a huge variety of Bitcoin miners is available on the market, the prices of which can be up to $ 20,000 depending on the capacity.
ASIC miners can be purchased both from manufacturers of mining equipment Cannan, Bitmain, Innosilicon, and from distributors on sites such as Walmart, Amazon and eBay.
Alternatively, you can build your own Bitcoin mining farm, which will consist of several ASICs. This design is more efficient in terms of power and hashing speed, but also requires significantly higher initial costs.
As calculations become more complex, miners have moved from using mini farms to data centers, which are currently in great demand.
They are usually located in places with cheap electricity, such as China. In addition to the size of the cost of electricity, the average temperature in the region is also taken into account. So, in colder places and at higher operating temperatures the server will consume less power, and in the hottest places, on the contrary, more. Therefore, the geographical location of these centers is perhaps the most important factor for achieving large profits.
Despite analysts' predictions regarding Bitcoin, portending both new highs and announcing another bubble in the field of high technologies, the mining market continues to grow at a tremendous pace. Data center operators are faced with a trend that is making new demands and forcing small miners to look for other ways to make a profit.
Video card mining (GPU) is an alternative way to mine cryptocurrencies. Usually, to achieve the best results, miners use video cards “more powerful” from manufacturers such as Nvidia and AMD.
Perhaps some asked themselves the question, how is mining related to the gameplay? Perhaps some asked themselves how is mining related to the game process? The thing is that the basis for the operation of video cards was originally the process that performs the same operations (for example, video processing). Something similar is observed when mining cryptocurrencies, since the hashing process is by its nature the same homogeneous.
You can mine any cryptocurrency on the CPU, but it should be understood that the production performance on different algorithms will bring different returns on investments. Mining cryptocurrencies, which are based on older algorithms, will not bring the desired profit, since video cards are no longer able to compete with ASICs, which in terms of performance significantly exceed them.
Bitcoin Mining Program
The profitability of Bitcoin mining depends not only on the power of the equipment, but also on the effectiveness of the software. There are many programs for mining bitcoins. Only some of the most popular are listed below:
- CGMiner — This is the BTC mining software that has been around for years. Manufacturers position this software as one of the best for mining bitcoin due to the presence of a wide variety of functions. The software supports all major platforms, including Windows, Linux, Mac OS, and is also compatible with hardware platforms such as ASIC.
- BFGMiner — this is customizable BTC mining software.Comes with dynamic monitoring, synchronization, and a remote interface, and also contains various device drivers, such as the Twinfury USB miner, Drillbit Thumb, and Eight.
- EasyMiner — it is open source BTC mining software that acts as a convenient shell for ASIC miners and CGminer programs and Cudaminer. The software also has two modes, including solo mode, and maintains a performance graph to track data regarding the production process.
In addition to Bitcoin software, there are also Android mining applications.
Before downloading the application, it is recommended to read the available reviews. For example, the topic of cryptocurrencies and Bitcoin mining is popular on forums such as BitcoinTalk and Bits.Media. On these platforms you can not only find feedback on the experience of using equipment and programs, but also get answers to all your questions from real industry experts.
Note that most ASIC models are equipped with their own operating system, so they do not need to install additional software. But downloading and exploring individual mining programs is still worth it.
Bitcoin Mining Calculator
Note that the main factors affecting the profit from mining BTC are:
- Cryptocurrency cost;
- The price of electricity that equipment consumes;
- The price of equipment.
In turn, an understanding of which direction the price of bitcoin will go will be a plus for choosing the best time to enter the industry. On the one hand, a price increase will provoke an increase in profits, but, on the other hand, competition in the sector will respond with growth.
Before investing in Bitcoin mining equipment, it is recommended to calculate the potential profit or loss on the Bitcoin mining calculator.
A calculator is the best way to determine the most profitable option in mining both bitcoin and other cryptocurrencies. The sites WhatToMine, ASICMinerValue, CryptoCompare, AsicTrade and others will help guide the user in this direction. To get the result, it will be enough to drive the cost of electricity in the production region.
Please note that the most profitable device, ASIC INNOSILICON G32-1800 at the time of writing, brings up to $ 170 per day, but it costs more than one thousand dollars.
The return on costs associated with the purchase and operation is far from guaranteed, therefore, any investments in Bitcoin mining are made at your own peril and risk.
Bitcoin Cloud Mining
In order not to splurge on expensive equipment, you can go a different way, do, for example, cloud mining bitcoins.
There are some disadvantages to using cloud mining services. Among them:
- Lower profit than using your own hash of capacities;
- Scam, since it is almost impossible to verify the operator of cloud mining;
- The inability to change mining software, since all the processes involved in mining are directly involved in the service;
- Contracts can be terminated with the service provider at any time. For example, if cryptocurrency prices are too low, this could be fraught with non-payment of income.
So, in order to have at least some confidence in the future, it is better to use services that support mining pools, such as Bitcoin Pool. The service is a division of the Bitcoin.com cloud mining company, a recognized and respected provider in the cryptocurrency community.
A wider list of companies can be found on the CryptoCompare website. It also presents customer reviews and ratings, which will also be useful when choosing a service.
As you complete the selection of the Bitcoin cloud mining provider, you can proceed to register with the service and conclude a contract. As a rule, profit depends on the amount of investments and terms.
However, it is important to note that these numbers are subject to change, so it is important to look at the Bitcoin market trend before choosing a contract.
Bitcoin Mining on a Home Computer
When Bitcoin was first announced, a home PC was enough to mine the world's first cryptocurrency. Today, the barrier to entry into the industry is much higher. And this means that it is impossible to engage in mining on a PC.
There are several reasons why this option is no longer relevant in the field of bitcoin mining. First of all, it is worth noting that processors are extremely slow, so the cost of maintaining this process will be much more profit if successful.
It is important to note that, despite the high volatility of bitcoin, which is fraught with some uncertainty in the future, mining is perhaps even more volatile. Fluctuations in equipment prices, changes in the complexity of BTC mining and the lack of guarantees regarding the payback of equipment, not to mention the likelihood of a net profit, make it a more risky investment than directly buying a cryptocurrency.
Therefore, it is too difficult to predict what profit will be obtained from mining bitcoin. But in any case, successful mining needs luck, computing power and patience. Therefore, only time will tell whether mining investors will be able to realize their plans and get rich on the next Bitcoin takeoff.