Bitcoin Mining

In the Bitcoin Mining section, you’ll dive deep into the technical and economic underpinnings of the Bitcoin mining process. You’ll learn about the electricity consumption required to power this process, as well as hashrate, mining pools, and the Proof of Work consensus algorithm, all of which play a critical role in ensuring the strength and security of the Bitcoin network. With this knowledge in hand, you’ll gain a comprehensive understanding of the mechanics of Bitcoin mining and its vital role in supporting the broader Bitcoin ecosystem.

This article is part of our Bitcoin ultimate hub. If you want to dig into other Bitcoin topics, then I’d suggest you go to that hub.

When it comes to newbies, many people still ask:

“How to mine Bitcoin?”

“How long does it take to generate a bitcoin?”

Mining bitcoins on a personal computer or phone has become unprofitable for a long time, but there are still ways to get involved in the industry.

One option is to join a bitcoin mining pool or use a bitcoin cloud mining provider, which allows you to generate bitcoin and other cryptocurrencies using someone else’s computing power without having to purchase it yourself.

Bitcoin mining can be a complex process, and the concept of cloud mining may be confusing to some.

In this guide, we will explain what bitcoin mining using a computing power provider and cloud bitcoin mining, or cloud mining, are, so you can make informed decisions about participating in the digital gold rush of the 21st century. If, after reading this guide, you decide that bitcoin mining is not for you, you may want to consider alternative options such as buying bitcoin directly.

Bitcoin mining: What is it?

Let’s start with a little bit of repetition. The basics of bitcoin mining: Bitcoins can be transferred 24 hours a day through the bitcoin blockchain network. These transactions are collected in a ‘block’ and processed every 10 minutes or so. The task of the bitcoin miner is to find or ‘mine’ this block. To do this, you have to provide computing power and solve a complex cryptographic (mathematical) puzzle. The miner who first solves the puzzle for the current block receives a reward in bitcoin (BTC). Currently, the reward for a block is 6.25 BTC.

Is it better to mine or buy direct?

This is a very good and important question! Here you have to decide whether you want to ‘produce’ cryptocurrencies yourself by mining, or whether it is better to invest in cryptocurrencies directly. Not safe? This is perfectly normal – a combined strategy is a good solution to this problem. This means mining bitcoin and at the same time buying and trading various cryptocurrencies directly on a platform such as eToro or Binance.

There is a common belief that mining bitcoin or other cryptocurrencies will automatically lead to higher profits. However, this is not necessarily true, as success in cryptocurrency mining depends on various factors.

In fact, investing EUR 1,000 directly in a top-10 cryptocurrency in January 2017 may have resulted in higher profits than investing the same amount in mining.

It is important to consider a diversified approach, such as purchasing cryptocurrencies directly and mining others, in order to maximize potential returns. It is also advisable to carefully research and consider all options before making any investment decisions.

A look back – What do you need to know about bitcoin mining?

The 6 most important questions about bitcoin mining:

1. How many bitcoins have been mined?

Hey, did you know that a cool 19 million bitcoins have already been mined into existence?

Here’s the kicker: there’s a hard cap of 21 million BTC, thanks to the genius of the Bitcoin code. Now, it’s gonna take a while for that last bitcoin to be mined—try 2140, my friend. Oh, and by the way, each bitcoin is super divisible, down to a whopping 8 decimal places. That teeny-tiny bit, 0.00000001 BTC, has a name: it’s called a Satoshi. Pretty awesome, right?

2. Mining bitcoins: Why is it worth doing?

Bitcoin is designed to have a sufficient number of units to be used globally by a wide range of users and applications. Mining allows for the processing of multiple transactions by adding them to new blocks on the blockchain. In addition to receiving the mining reward for creating a new block (currently 6.25 BTC), the miner also receives all transaction fees for the transactions included in the block.

Currently, the block reward makes up a larger portion of the miner’s profits than transaction fees, but this will change over time as the value of the block reward decreases by 50% approximately every four years. This is meant to ensure that the supply of new bitcoins released through mining is maintained at a steady rate.

3. What is the halving of Bitcoin?

Every four years, the reward for mining a new block of bitcoin is halved. The most recent halving occurred in 2020, when the reward was reduced from 12.5 BTC to 6.25 BTC per block.

Eventually, the block reward will drop to zero, but this does not mean that mining will become irrelevant. As the block reward decreases, transaction fees are expected to increase, which will make up for the loss of the block reward.

This will help to ensure that the process of mining remains economically viable.

Find out more about Bitcoin Halving.

4. What is the real bitcoin blockchain?

      See also: Hashrate: The Ultimate Indicator of Bitcoin’s Strength and Security

When a new block is added to the bitcoin blockchain, it is reported to all nodes in the network and becomes the longest valid blockchain. However, since bitcoin nodes do not inherently trust each other, the network must determine which block or blockchain is the correct one. The majority of nodes will choose the longest blockchain, as it is considered the most trustworthy.

The longest blockchain can only be created from valid blocks, which can only be produced through the resource-intensive process of mining.

In practice, the blockchain with the most computational power invested in it is typically accepted as the main blockchain of the network.

5. What is bitcoin proof-of-work?

      Dive deeper: Proof of Work (PoW): how it works and what are its benefits

The bitcoin proof-of-work (PoW) algorithm involves solving a cryptographic problem using a specific amount of computing power, which is powered by electricity and investment capital. As the workload of the algorithm increases, so does the amount of computing power needed to generate a new block. While it is theoretically possible for an individual or group to successfully execute a 51% attack on the blockchain by controlling more than 51% of the network’s computing power and modifying blocks, this would require an immense amount of computing power and be cost-prohibitive. Therefore, it is unlikely that a 51% attack could be successfully carried out on a PoW blockchain.

6. What is the difficulty of mining bitcoin?

As more and more people join the mining process, the likelihood of any one individual finding the next block decreases. In order to increase their chances of success, a miner must increase their computing power in proportion to the new computing power being added by other participants. In this way, miners are in competition with each other, as the more computing power they have, the higher their probability of solving the cryptographic puzzle required to create the next block.

To ensure that new blocks are generated approximately every 10 minutes, the difficulty level of this puzzle is adjusted every two weeks. A higher difficulty level means that more computing power is required to solve the puzzle, and solutions that do not meet the current difficulty level of the bitcoin code will not be accepted. While it is impossible to guarantee that any one miner will find the next block, the potential profits are high enough that significant returns can be made even after finding only a few blocks.

What is the best hardware for bitcoin mining?

What is CPU and GPU mining?

In the beginning, bitcoins were mined using a computer (CPU). Then came mining with more powerful graphics cards (GPUs). GPUs were able to generate about 50-100 times more computing power than CPUs, because the graphics cards could do the work in parallel. Moreover, the power consumption of a mega hash (MHash) is lower than that of a CPU.

Bitcoin mining with video cards

Any video card can be used for mining, but AMD’s GPUs were the best and cheapest, even before nVidia’s.

What is FPGA Mining?

Video cards have given way to FPGAs (Field Programmable Gate Arrays), which are integrated with digital technology. Although there has not been a 50-100 fold increase in computing power as in the transition from CPU to GPU, energy efficiency has increased by about 2-5 times.

Mining Bitcoin – What is ASIC mining?

Currently, the most successful miners have switched to using ASIC (Application Specific Integrated Circuit) chips, which are electronic circuits designed specifically for bitcoin mining.

These chips offer significantly higher performance than FPGAs (Field-Programmable Gate Arrays), which can also be used for mining but have less specialized capabilities. In terms of computing power, ASICs can perform up to 100 times more hashes per second than FPGAs.

They have become the standard in the mining industry and are consistently becoming more efficient with each new generation. Efficiency is measured by the power consumption per hash. It is unlikely that ASICs will be replaced by other performance-enhancing products in the near future.

When considering purchasing bitcoin mining hardware, it is essential to consider both the power consumption and hashrate of the device, as well as its expected lifespan.

The higher the hashrate, the more powerful the device, but this also typically means higher energy costs.

To determine the cost-effectiveness of mining, you should compare the costs of the equipment, energy, and current electricity prices to the hashrate of the device. This will help you to determine which option is the most financially viable.

Which software is suitable for bitcoin mining?

You have two options to participate in bitcoin mining:

1. Mining privately
2. Become a member of a mining pool

To start the process, you have to install the bitcoin software and set up a JSON-RPC connection. This is time-consuming and expensive, as technical knowledge is required. The second option, joining a bitcoin mining pool, is the most common and hassle-free way of mining. You can find out how to participate in such a bitcoin mining pool here:

What is a bitcoin mining pool?

In a mining pool, computing power is centrally supplied by each participant. The reward for finding a block of bitcoin is shared proportionally among all pool participants. The main advantage is that it receives more regular and consistent payments from the mining pool than mining on its own.

Bitcoin mining in the cloud: Advantages and disadvantages

Advantages:

• No equipment required for bitcoin mining
• No electricity costs, at least not directly
• No noise from mining platforms
• No equipment administration required

Disadvantages:

• Some cloud mining services cheat users
• Less profit than normal mining (but less variance)
• No ownership of mining equipment
• No control over occurrence of technical problems

How to identify untrustworthy bitcoin mining service providers?

To avoid potential scams, it is always worth checking the service provider very carefully. The first warning sign is, of course, the promise of unrealistic profits that simply cannot be achieved. When it comes to energy contracts for bitcoin mining, they usually start at 12 months. Reaching profitability means having earned on something at least as much as you have invested.

Other red flags could be high service charges or non-transparent contracts. In any case, there are providers who have practically specialised in offering their customers contracts in which they set variable service fees. In the beginning, you should always pay attention to the company, contracts, prices and reimbursement rules to avoid scams. In the following article, we take a look at Genesis Mining, a popular mining service provider in the cryptocurrency sphere.

Bitcoin mining: service providers

Mining bitcoins via a computing power provider is a great solution for newcomers who want to have their first mining experience or who simply want to diversify their cryptocurrency wallet. Always be on your guard, as it is well known that there are many dishonest providers in this industry. We have prepared a relevant overview for all those who prefer to buy bitcoin the traditional way.

Mining bitcoin: Is it profitable?

The ratio of the following parameters is needed to calculate the profitability of bitcoin mining:

• Computational power of hashing in hashes/second
• Bitcoin difficulty level
• Energy consumption in watts
• Energy cost in kWh (kilowatt hours)
• For mining pools, the fee

The return on mining cannot be calculated at a glance. It largely depends on the listed parameters. Not only bitcoins can be mined. Other cryptocurrencies, such as Monero, Ethereum, Litecoin, Verge, Peercoin, etc., are also available. The merit can be calculated by yourself or by using a bitcoin mining calculator.

Bitcoin Mining: Mining Calculator

In order to accurately calculate your profit or loss, we recommend you visit this bitcoin calculator.

Staking: the new mining?

Bitcoin is based on the Proof-of-Work (PoW) consensus algorithm. It serves as a security mechanism for the bitcoin network that every miner must comply with. However, many of the newer cryptocurrencies are based on a mechanism called proof-of-stake (PoS). Examples of proof-of-stake are Dash, NEO, QTUM, Tezos, Stratis, Loki, ALQO, PIVX, Blocknet and many others. Here one deposits, similar to a deposit account at a bank, coins in the corresponding blockchain. The more coins you invest, the higher the weighted random number that can be created in the next blockchain. For many blockchains, the duration of the coin investment is also crucial.

Blockchain periods are often at least one month. The person who finds the blockchain, in this case the bettor, does not get paid for the blockchain, as in the case of bitcoin mining. The bettor receives a share of the transaction fees. Staking is more profitable than proof-of-work mining. Only a fraction of computing power is needed to keep the node running, which helps to maintain transactions on the PoS network. Running your own node can be very interesting. It is often possible to earn a good annual income here. All that is needed is the right currency and to run the node on a server (or permanently running computer).

On the Masternodes Online website you can see the selection of coins, their annual return, minimum investment and more.

If you want to know more about where you can stake your cryptocurrency, check out this comparison article – Best Staking Exchanges.

Application

Bitcoin mining on a PC in Italy is unfortunately no longer feasible. The reason is that the computing power is too low and the electricity costs too high for the average Polish family. The price of electricity in Italy is practically unchangeable. However, it is possible to change the way bitcoin is mined. You can buy efficient ASICs, which are special electronic circuits designed specifically for bitcoin mining.

The probability of finding bitcoin is low; you are in competition with other miners. Therefore, it can take a long time to get the reward in bitcoin. It makes sense to connect your ASIC device to the mining pool. In this case, you will receive a portion of the bitcoin reward in proportion to your computing power. If you do not want to buy the hardware, you can participate in cloud mining. Vendors such as Genesis Mining rent or sell mining equipment to overseas mining companies. These suppliers are mainly located in cold countries with low energy costs, such as Iceland and Canada. To make a profit, join a pool with good equipment or start mining in the cloud.

Frequently asked questions about mining bitcoin