Many people are still not aware of how to mine Bitcoin. This article is gonna explain how Bitcoin mining works. Bitcoin mining has good appeal as many investors are interested. Miners receive crypto tokens as rewards for their work. Moreover, they see Bitcoin mining as pennies from heaven.
However, before investing the time and equipment, read this article to see whether Bitcoin mining is really worth it.
Why do people mine bitcoin?
Bitcoin continues to attract more interest even in the middle of a chaotic market. However, the price of Bitcoin has had its ups and downs over the last few years. People mine bitcoin regardless of the factors surrounding its profitability.
The miner, upon completing the Proof-of-Work, adds a new block to the blockchain. This helps in verifying a group of transactions over a certain period of time. In addition, people give new bitcoin that the protocol releases and they award the transaction fees attached. In this way, people acquire bitcoin without purchasing it.
The bitcoin protocol determines the speed and volume of increasing the bitcoin supply. Successful miners receive new bitcoins every ten minutes. Yet, time does not technically determine this algorithm.
Instead, it is designed to regulate how difficult it is for the miners to seal off a new block, to keep the flow of new supply steady at that speed. This means the rate at which bitcoin is released is unaffected when the number of miners in operation raises or greater computing power is applied.
How transactions work on the Bitcoin network
Normally, blockchain is the place where all the transaction data is recorded. In addition, the first block was mined in 2009. A chain of blocks created over the years. And also, past transactions will be difficult to edit.
Mostly, bitcoin miners compete hugely to receive a block reward. However, bitcoin mining generally takes a lot of computing powers. Furthermore, the one who gets to validate a block will solve mathematical problems before the rest of the network.
Moreover, after solving the puzzle with a size of 1MB, a new block is created every 10 minutes. Thereafter, bitcoin transactions that are hoping to be confirmed are then joined from a mempool. In addition, bitcoin miners will prioritize Bitcoin users who are willing to pay high fees in their block of transactions.
In addition, the new block also comprises a coinbase transaction. This is how Bitcoin miners collect the 6.25 BTC reward for their efforts, as well as the transaction fees of every payment included in their block.
Mining and bitcoin circulation
Mining is generally a process of adding transaction records to the blockchain. However, miners are individuals or companies which contribute computing power to help operate and maintain the blockchain network underpinning bitcoin as a digital currency.
Bitcoin mining became more difficult over the years. In the beginning, any person with a laptop could mine new cryptos. Hence, they receive rewards when they verify a new block of transactions through solving complex mathematical problems.
Nowadays, life is not as easy for Bitcoin miners. Mining rewards are split into half during the Bitcoin halving event. Moreover, the number of bitcoins entering circulation has been decreased. There are presently 18,513,987.5 bitcoins in existence. However, there are over 2,486,012.5 million bitcoins left to be mined. As per recent estimates, over 3 to 4 million bitcoins are already lost.
What is the hash rate?
Hash rate is normally the speed at which a Bitcoin mining device operates. It is also called hash power. It tells how much computing power Bitcoin miners require for processing blocks of transactions. The higher the levels of hashing power, the more secure the blockchain will be. Moreover, speed is essential for miners for successful Bitcoin mining.
In order to check that cryptocurrency mining happens consistently, Bitcoin mining difficulty on the blockchain is adjusted. In case the hash rate was at a high level and the mathematical problems required to get block rewards were easy, new bitcoin will enter into circulation quickly.
What is a bitcoin mining rig?
A bitcoin mining rig is specifically designed for minting new bitcoins. However, state-of-the-art processing units aim to offer the highest hash rates possible, giving miners a greater chance of being the first to solve mathematical problems.
Many firms produce Bitcoin mining hardware. And as an alternative, it is also possible to build their own hardware. Moreover, electricity costs are a massive concern, otherwise, the expense of energy consumption could outweigh any block rewards you receive.
Furthermore, the main elements of the Bitcoin mining rig involve a motherboard, graphics card, power supply, a cooling solution to prevent infrastructure from overheating, a processor, and a robust frame that keeps the bitcoin mining rig together and protects it from dust.
Types of bitcoin mining rigs
Let’s go through a few of the most common bitcoin mining rigs. Each type of Bitcoin mining hardware has its own pros and cons.
- ASIC bitcoin mining
ASIC stands for an application-specific integrated circuit. These types of devices have been built with the unique intention of mining bitcoin and other cryptocurrencies. This hardware comes in a different form, and some kits are way more expensive than others.
They were especially beneficial because they deliver exceptional levels of computing power while minimizing electricity costs.
- Scrypt bitcoin mining
Scrypt bitcoin mining is especially popular on the blockchain of Litecoin. However, it is designed to serve as an improvement to the SHA-256 hashing algorithm. Through Scrypt, miners could generate random numbers as quickly as possible and store it in a RAM location.
Moreover, the Scrypt bitcoin mining approach is friendly for miners with GPUs. Moreover, it can create a level playing field as it reduces the advantage that ASIC miners have.
- GPU bitcoin mining
A GPU bitcoin mining rig is a special computer for mining bitcoin using GPUs. In addition, this looks like a regular personal computer. However, this type of mining approach is most popular among bitcoin mining farms.
Here, graphics cards used to mine blockchain data. Although they are effective, graphics cards can be highly expensive and can become obsolete as standards change.
- CPU bitcoin mining
CPU bitcoin mining involves mining bitcoin from the computer. It is a simple and inexpensive approach to take. Unfortunately, it is pretty impractical when it comes to mining bitcoin. Moreover, this is the best-reserved method for altcoins.
The main advantage that the CPU method of bitcoin mining has is its availability. People could download a few programs to their desktop or laptop and start bitcoin mining instantly. People who don’t want to invest a lot of money favor CPU bitcoin mining because it does not require much effort.
How to choose hardware for bitcoin mining
When considering how to mine bitcoin, choosing a bitcoin mining hardware is important. However, bitcoin mining is worth more for spending on hardware and electricity. Initially, people might feel that the investment is quite expensive.
In order to choose the right bitcoin mining hardware, it is necessary to make sure to evaluate the hashing power, consumption of electricity, ambient temperature, and initial cost to buy.
While choosing the hardware, it is necessary to check how many hashes per second the device can make. Usually, we can measure it through Gh/s, Th/s, or Mh/s. Usually, the manufacturers specify the details of the device hashrate or the speed at which the device can perform bitcoin mining calculations.
Moreover, people can determine the hashrate requirement by looking at the current bitcoin difficulty. The calculation of existing difficulty to find a hash can help to determine the device performance.
Another important factor to look into when selecting the best bitcoin mining hardware is electricity consumption. Unless people get free electricity, the cost to power a bitcoin mining rig can significantly impact the profit. However, the electricity cost depends on the place people live in.
The return on investment (ROI) is estimated by dividing the hash execution performance by the number of electrical power consumed. Moreover, the bitcoin mining data centers will use resources such as geothermal power and hydropower to minimize electrical costs.
Before settling on the best bitcoin mining hardware, it is necessary to consider the amount that you can afford. This is vital in order to spend on the machine and other expenditures, such as maintenance, repairs, and electricity.
However, considering the fastest and more efficient bitcoin mining hardware might cost more. The overall investment may also include the cost of connectors to tether all miners, buying racks, and buying replacement parts if ever needed.
Bitcoin miners have higher hashrates that increases the chance for a bigger reward. Although a high hash rate is crucial, efficiency is just as important. Moreover, the best miner uses energy efficiently so that people have to pay less in electricity costs per hash.
How much electricity does bitcoin mining use?
The electricity cost to mine a bitcoin depends on where the miner lives, the bitcoin mining hardware, and the amount of power it consumes. In addition, more efficient bitcoin mining equipment leads to less power consumption. On other hand, less power consumption provides lower power bills.
In spite of many bitcoin mining computers available, many firms have concentrated on Application-Specific Integrated Circuit (ASIC) bitcoin mining computers, which use less energy to conduct their calculations.
To calculate the cost of electricity, we must know the number of sums conducted each second in solving bitcoin’s mathematical puzzles. Particularly, we call these sums “hashes”. In early 2020, the bitcoin mining computers on the bitcoin network are almost 120 Exahashes per second.
Gigahash Per Second = 1 Watt
Terahash Per Second = 1 Kilowatt
Petahash Per Second = 1 Megawatt
Exahash Per Second = 1 Gigawatt
The bitcoin mining network consumes around 120 gigawatts (GW) per second. This is almost 63 terawatt-hour (TWh) per year. In addition, this amount of power is equal to 156 million horses (1.3 million horses/GW) or 49,440 wind turbines (412 turbines/GW). In order to mine a bitcoin, it takes 600 seconds (10 minutes). As a result, it takes 72,000 GW of power to mine one bitcoin.
Media outlets and bloggers have produced different estimates of the electrical energy used in bitcoin mining, so the accuracy of power use is vague. Moreover, the problem with estimating bitcoin’s energy consumption is that it will change over time.
Is bitcoin mining profitable?
Bitcoin mining profitability is unsure right now. However, most bitcoin miners were making a profit in the initial years. In addition, some miners must be reaping rewards as otherwise there would be no incentive for them to continue bitcoin mining. While some could still be making money mining bitcoin, it is certainly less profitable than it used to be. Competition is harder than ever before.
The first bitcoin miners earn coins quickly by just using the computing power they had in their homes. As time goes by, bitcoin mining becomes more complicated. However, bitcoin halving happens every four years and split the block rewards into half.
People can join a bitcoin mining pool in order to be more effective. But this requires some fee reducing the profits. However, some mine other cryptocurrencies that cost little in US dollars. Later on, they will convert these into bitcoins through cryptocurrency exchanges, hoping that bitcoin gains in value.
What are the security risks?
In order to mine a bitcoin, it requires a lot of expensive computing power. In line with this, public Wi-Fi networks used may access users’ devices to mine for Bitcoin. However, this may cause malware infection.
In addition to public Wi-Fi networks, millions of websites compromise access on users’ devices for bitcoin mining. In fact, this has become such a widespread problem, that over one billion devices slowed down by web-based bitcoin mining.
Here are tips to keep your devices safe as you monitor the cryptocurrency market:
- Avoid public Wi-Fi networks — These networks often aren’t secured, opening the device and information up to a number of threats.
- Use a VPN — Virtual private network (VPN) is a piece of software that gives you a secure connection to the internet. Thus, third parties cannot intercept or read the information.
- Secure Your Devices — New threats like Bitcoin malware are entering all of the time. Protect devices and information with comprehensive security software and also keep yourself informed on the latest threats.
Is bitcoin mining legal?
Bitcoin mining is legal in most places. However, there are still some places where the use of bitcoin and bitcoin mining are illegal. Furthermore, through the use of malware that hijacks computers and utilizing their power to mine, other cryptocurrencies can also be mined.
This practice sees malicious attackers take over unsuspecting users’ personal computing devices remotely and direct those devices to mine other cryptocurrencies. This leads to sending the rewards elsewhere, running up the victims’ energy bills. Though this is not a sensible way to mine bitcoin, other cryptocurrencies can be mined in this way and then converted into bitcoin.
Moreover, bitcoin mining is illegal in places where the government directly resists bitcoin due to its ability to compete with the fiat currency, weakening the government’s authority at huge or however, due to general misunderstandings about the technology.
Furthermore, throughout the world where bitcoin mining appears to be legally acceptable, governments will prosecute those who use bitcoin for illicit purposes. Anyone who mines bitcoin should be aware not only of the legal status of that practice in their jurisdiction but of the uses for bitcoin that the government finds acceptable.
Is bitcoin mining centralized?
Yes, bitcoin mining has a tendency to be centralized. Anywhere and anyone with a device capable of connecting to the Bitcoin network and hashing mempool transactions could participate in bitcoin mining. However, bitcoin mining has become such a profitable industry.
In fact, many produce specialized bitcoin mining hardware. These require less amount of operation in contributing to the majority of the network’s hash power. In addition, concerns on Bitcoin mining centralization have been circulating since 2014.
People can check for the mining pool distribution here. Slushpool controls 11% of the hash rate. However, upon looking at Slushpool’s stats page, people will note that they show 96,000 individual miners contributing to that hash rate. Moreover, Slushpool could start acting maliciously. But then miners will go somewhere else.
Economies of scale have led to the concentration of bitcoin mining power. This is particularly those who can operate the most efficient miners at the lowest cost of energy. Normally, most of the Bitcoin network’s mining hash power comes from China.
The University of Cambridge displays that China accounts for 65% of the world’s hash power. More so, the autonomous Xinjiang region produces about 50% of the country’s hash rate. Despite that, bitcoin mining operations commence across the world.
The Alternatives: Mining Pools and Cloud Mining
A bitcoin mining pool is the pooling of resources by miners sharing their processing power over a network. In order to split the reward equally with the amount of work, they contribute to the probability of finding a block.
Members of the bitcoin mining pool receive shares for showing a valid partial Proof-of-Work. Mining in pools began when the difficulty for bitcoin mining spiked to the point where it could take centuries for slower miners to generate a block.
The solution to this problem was for miners to pool their resources so they could generate blocks more quickly and therefore get a portion of the block reward on a consistent basis, rather than randomly once every few years.
Another is cloud mining. Instead of getting all the Bitcoin mining hardware yourself, this is where you effectively buy processing power from remote bitcoin mining farms. This is comparable to being an investor in a sophisticated operation, where people receive a cut from proceeds.
Although there are legitimate ventures that sell bitcoin mining power, people need to be on the lookout for scams. Even though it’s low maintenance, people need to enter into a lengthy contract with high monthly fees. This can end up eating into your profits and it is possible you will make a loss.