Mining is the process through which Bitcoin transactions are verified and added to the blockchain. The goal of miners is to find a valid solution to complex math problems. Miners that manage to solve these puzzles are rewarded with new bitcoins and transaction fees.
In the early days, Bitcoin users were able to join the mining race with their personal computers. Nowadays, profitable mining requires the use of highly specialized mining rigs. Since solo mining is very difficult, many miners opt to join a mining pool to increase their chances of getting a block reward, which is then shared proportionally between pool members.
Bitcoin mining ensures that the blockchain is up-to-date with legitimate transactions. It was, at the time, a unique solution to creating trust in a trustless environment. In this sense, mining is core to the security model of Bitcoin.
The idea of mining and receiving BTC in return is an attractive sounding deal. While the days of mining with a computer CPU are gone, getting involved with mining doesn’t always require owning a physical machine. But before you can decide if mining is for you, let’s discuss briefly how Bitcoin mining works.
What is Bitcoin mining?
The goal of a miner is to find a valid block hash for their candidate block. A block hash is a string of numbers and letters that functions as a unique ID for each block. Here’s an example of a block hash:
In order to create a new block hash, the miner needs to gather the block hash of the previous block, their candidate block’s data, a nonce, and submit it all through a hash function.
As soon as a miner finds a valid hash, they can validate their candidate block and collect the bitcoin rewards. This is also the moment that the blockchain transactions included in that block go from pending to confirmed.
How much a Bitcoin miner earns
Another important metric is the energy consumption of a mining rig. If you spend more money on electricity than the value earned mining, profitability goes out of the window.
How to start mining Bitcoin
Theoretically, you could still try to mine bitcoins with your personal computer, but the chances of finding a valid hash are practically zero. Computing the hash function is relatively quick, but calculating the massive amount of random inputs takes much longer. That’s why you now need specialized hardware before even trying to be a profitable miner.
What mining equipment should I use?
Generally speaking, you could try mining cryptocurrencies using a CPU, GPU, FPGA, or ASIC machine (we will go through these in a moment). Some altcoins can still be mined with GPU cards. FPGA machines could also be an option depending on the mining algorithm, difficulty, and electricity costs. But when it comes to Bitcoin, ASIC mining rigs are the most efficient.
CPU (central processing unit)
GPU (graphics processing unit)
GPUs may serve different purposes, but they are basically used to process graphics and output them to a screen. They are able to divide complex tasks into several smaller ones to increase performance. Some altcoins can be mined with GPUs, 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 are less efficient for Bitcoin mining.
ASIC (application-specific integrated circuit)
How to join a mining pool?
When joining a pool using your hardware locally, you will have to configure your software to partner with other miners. The process typically involves signing up for an account and connecting to a mining pool server.
You can get an idea of how much profit you might get on the Binance Pool page. BTC earnings are paid out daily into your Bitcoin wallet.
If you want to avoid the more technical steps, you can also join a cloud-mining farm, leaving the hardware and software up to the farm owners. Broadly speaking, cloud mining usually consists of you paying for someone else to mine on your behalf. The farm owner is then expected to share the profits with you. However, this option is very risky as there is no guarantee that you will get a return on your investment. Many cloud mining services turned out to be scams, so be careful.
The initial investment for profitable mining is very high, and there are many risks involved. Your returns will also depend on market conditions and external factors like energy prices and hardware improvements. Make sure to do your research before spending any money on a mining rig.