In a nutshell, Bitcoin mining consists of trading computational power in exchange for Bitcoin. By using electricity to solve complex math problems in an allotted time, miners receive Bitcoin.
The amount of Bitcoin that you receive is directly proportionate to the amount of computational power you give compared to the network.
The mining aspect of Bitcoin is arguably the most important part of what makes Bitcoin so powerful and different than what most of us have seen before.
Bitcoin uses mining to validate any past transactions so that nobody can double-spend any Bitcoin. This allows all the participants in the network to transact with each other without having to trust in a centralized party.
Mining is also responsible for releasing new Bitcoin into the network at a predetermined rate. The amount of computation power that is currently on the Bitcoin network is called the hash rate.
The hash rate is too high for the average person to join without buying specialized hardware to help mine Bitcoin, however, if someone had enough money there is nothing stopping them from joining the network.
It should take about two weeks for the network to find the 2016 blocks. Based on this, a number is manipulated, called the nonce. After those 2016 blocks are found, the network will either make the nonce more or less difficult.
If it takes longer than weeks, it will make is less difficult and if it took less than two weeks it will make it more difficult. The lower the difficulty number is the harder it is to find the blocks.
One block should be found every ten minutes and currently if one is found the SHA-256 algorithm creates and rewards 12.5 Bitcoin to the founder of the block.
Bitcoin halves its block rewards every four years with the last one occuring in 2016. Mathematically the next one should be in 2020.
Ultimately what that means is, instead of the Bitcoin algorithm rewarding miners 12.5 Bitcoin (+transction fees) every time a block is found, it will reward them with 6.25 Bitcoin.
There are a few factors to consider when deciding to mine Bitcoin.
If you’d like to mine as a hobby, buying one of the latest ASICs and pointing it at a pool would be an interesting learning experience. But it would not make you money.
Bitcoin mining equipment is expensive and can take a while to give you a positive return on investment. Currently, the newest Bitmain miner available is the Antminer S17 Pro-50TH/s.
Directly from Bitmain, this ASIC would run you $2503. If you were paying ~$.10/kWh it would take you 1,516 days to make your money back at $1.65 a day.
Another thing to consider is as time goes on, more efficient ASICs will be put onto the market reducing your profits. The likelihood of you making your money back are slim to none, especially if you must convert your Bitcoin to USD to pay for electricity.
So you’re probably wondering…
Why would anyone mine Bitcoin?
The thing is, Bitcoin mining can be pretty lucrative if you have a decent-sized mining operation and are paying close to nothing for electricity.
Mining pools are essential if you plan on mining for a profit. The amount of hash power that is pointing to the Bitcoin network is enormous.
Pools were created to reduce the variance involved in the mining process. Generally speaking, as the amount you time mining approaches infinity, the expected payout should be near identical. But who’s got that much time!
By pooling a group’s hashing power together, miners are able to receive much more frequent payouts. Once a pool successfully finds a block, block rewards are split proportionally based on the contributed hash rate.
Here’s some things to consider when picking a mining pool:
Here’s the current Bitcoin mining pool distribution:
Some of the pools are not optimal. A lot of times what will happen is if a pool has too much hash power, they will increase the fees and lose users to other pools.
This helps keep the network safe from any one person having to much hash rate.
Nowadays you don’t have to worry about Bitcoin mining software because you will most likely be mining with an ASIC.
Bitcoin mining software is already embedded in the ASIC’s and you simply choose where to point your miner through a browser interface (Perhaps you can put a picture of this right here). It’s very simple and gives you lots of stats on your miner.
A couple of new distributors have come into the SHA-256 algorithm market. The company that has the most miners and devices is Bitmain. They make quality miners and are consistently coming out with new models.
Halong is also another big distributor of ASIC miners. There are new miners coming out every year, this is something to keep in mind if you are looking at older models to try out.
Bitcoin mining is very complex and consumes a lot of energy. If there’s anything you should take away from this, is that mining is not for the average person. It requires extremely dedicated setups for it to be profitable.
However, the science, game theory, and math behind it is fascinating making it an intriguing choice for hobbyists wanting to learn more about the backbone of Bitcoin.
In the end mining Bitcoin is more energy-efficient than the current Fiat system that we have in place!