How to mine Bitcoin
Mining is the process of verifying bitcoin transactions and adding them to the blockchain. The goal of miners is to find effective solutions to complex mathematical problems. Miners who manage to solve these problems will be rewarded with new bitcoins and transaction fees. In the early days, Bitcoin users could use their personal computers to join the mining competition. Today, profitable mining requires the use of highly specialized mining equipment. Because it is very difficult to mine alone, many miners choose to join the mining pool to increase their chances of getting block rewards, and then share them proportionally among pool members.
Bitcoin mining ensures that the blockchain stays in sync with legal transactions. At the time, it was a unique solution to build trust in a trustless environment. In this sense, mining is the core of the Bitcoin security model. The idea of mining and receiving BTC in return is an attractive transaction. Although the days of mining with computer CPUs are gone, participating in mining does not always require a physical machine. But before you decide whether mining is right for you, let us briefly discuss how Bitcoin mining works.
What is Bitcoin mining?
When a user creates a new Bitcoin transaction, it needs to wait for other network users (nodes) to verify and confirm its validity. Miners are responsible for collecting new, pending transactions and grouping them into a candidate block (a new block that has not yet been verified). The goal of miners is to find a valid block hash for their candidate block. A block hash is a string of numbers and letters used as a unique ID for each block. The following is an example of block hashing: In order to create a new block hash, miners need to collect the block hash of the previous block, their candidate block data, and a random number, and submit them all through the hash function. However, the miner must find a random number—combining all data—that will generate a block hash starting with a certain number of zeros. The number of zeros varies according to the difficulty of mining. A valid block hash proves that miners have done the necessary work to verify their candidate blocks (hence the proof of work).
After collecting pending transactions and creating their candidate blocks, the random number is the only thing that the miner can change, which is what the miner does. In the intensive trial and error process, the miner constantly changes the random number and hashes the combined data multiple times until it finds a solution to the block (that is, a hash that starts with a certain number of zeros). Once miners find a valid hash, they can verify their candidate blocks and collect bitcoin rewards. This is also the moment when the blockchain transaction contained in the block changes from pending to confirmed.
How much a Bitcoin miner earns
Each new block provides a block reward for the respective miner, which includes newly generated Bitcoin (block subsidy) plus transaction fees. Since block rewards are almost entirely composed of block subsidies, most people refer to them as block rewards (regardless of fees). As far as Bitcoin is concerned, the block subsidy starts from 50 BTC in 2009 and is reduced by half every 210,000 blocks (approximately four years). These halving events caused the mining reward to be reduced to 25 BTC in 2012, then to 12.5 BTC in 2016, and finally to 6.25 BTC in 2020. The next halving event is expected to occur in 2024. As of May 2021, the block reward will give miners approximately $300,000 per block.
Nevertheless, there are still many factors to consider when evaluating mining equipment and profitability. The speed at which mining equipment generates random random numbers and tests them is an important indicator that needs to be checked. This number is called the hash rate and is critical to the success of Bitcoin miners. The greater the hash rate, the faster you can test these random inputs. Another important indicator is the energy consumption of mining equipment. If you spend more money on electricity than the value gained from mining, then profitability will disappear.
How to start mining Bitcoin
Since Bitcoin is decentralized and open source, anyone can join the mining competition. In the past, you could use a personal computer to mine new blocks. But as the difficulty of mining increases, you now need more powerful machines (see below for more details). In theory, you can still try to mine Bitcoin with your personal computer, but the chance of finding a valid hash is almost zero. Calculating the hash function is relatively fast, but it takes longer to calculate a large number of random inputs. This is why you now need specialized hardware even before trying to become a profitable miner.
What mining equipment should I use?
Generally speaking, you can try to use CPU, GPU, FPGA or ASIC machine to mine cryptocurrency (we will introduce these later). Some altcoins can still be mined with GPU cards. FPGA machines may also be an option, depending on the mining algorithm, difficulty, and electricity bill. But as far as Bitcoin is concerned, ASIC miners are the most efficient.
CPU (central processing unit)
The CPU is like a multi-function chip, responsible for distributing instructions in different parts of the computer. The CPU is no longer effective for cryptocurrency mining.
GPU (graphics processing unit)
GPUs may serve different purposes, but they are basically used to process graphics and output them to the screen. They can divide complex tasks into several smaller tasks to improve performance. Some altcoins can be mined using GPU, but the efficiency depends on the mining algorithm and difficulty.
FPGA (field-programmable gate array)
FPGA can be programmed and reprogrammed to serve different functions and applications. They are customizable and more affordable than ASICs, but they are less efficient for Bitcoin mining.
ASIC (application-specific integrated circuit)
ASIC stands for Application Specific Integrated Circuit, which means that these computers are designed for a single purpose. ASIC miners are fully dedicated to mining cryptocurrency. Compared with FPGAs, ASICs are less customizable and more expensive, but their hash rate and energy consumption levels make them the most effective choice for Bitcoin mining
The chance of mining blocks by yourself is extremely low. On the contrary, joining an encrypted mining pool allows you to combine your computing power with other miners. When the mining pool successfully mines a block, each miner will receive a copy of the mined bitcoins. The mining pool reward is directly proportional to the mining capacity you provide.
If you want to avoid more technical steps, you can also join the cloud mining farm and leave the hardware and software to the farm owner. Broadly speaking, cloud mining usually involves you paying to ask someone else to mine on your behalf. Then expect that the farmer will share the profit with you. However, this option is very risky because there is no guarantee that you will get a return on your investment. Many cloud mining services have proven to be scams, so be careful.