How to Mine Bitcoin
Bitcoin mining is the process of adding new transactions to the blockchain. Miners confirm and publish and update transactions to the network by solving mathematical puzzles in a process known as proof-of-work (PoW).
Mining can be highly rewarding. Miners receive 6.25 Bitcoins and another reward in the form of network fees when they complete the process successfully.
However, the mining process is also very costly. Mining one Bitcoin can cost you thousands of dollars.
Bitcoin mining is a competitive activity and only winners are rewarded. Therefore, you need powerful computers to beat the competition and earn rewards.
Back in 2009, when Bitcoin was launched, the competition for mining Bitcoin was very low. It was possible to mine Bitcoin using a personal computer. Today, more and more miners have joined the network driving up the competition. Only those ready for substantial investment can expect a significant reward.
Also, as the mining difficulty increases, more powerful computers are required to solve the mining puzzles. Applications such as application-specific integrated circuits (ASICs), and energy-efficient equipment specialized graphics processing units (GPUs) are required by miners to remain competitive.
Is Bitcoin Mining Profitable?
Whether Bitcoin mining is profitable today or not depends on various factors including:
A hashrate refers to the performance of your miner – how many guesses your computer can make per second in trying to find the solution to the mathematical problem. Hashrate can be measured in mega hash (MH/s), giga hash (GH/s), tetra hash (TH/s), and even peta hash (PH/s).
The higher the hashrate your miner has, the more likely it find the solution first. This factor explains partly why you cannot rely on your CPU, as a solo miner.
The mining reward is the number of Bitcoins a miner receives when they solve the mining puzzle. The number started at 50 bitcoins in 2009 and has been reducing by half after every four years. The current reward is 6.25 bitcoins per block and the number will continue to reduce. Bitcoin mining can only be profitable if the mining cost is lower than the reward. Therefore, the profit continues to reduce as the reward reduces.
Mining equipment is generally energy intensive. However, some miners are more energy efficient than the rest. You will need to find out the exact power consumption of your miner before calculating your profitability. Also, you must consider the electricity rates, as this also varies with the form of energy used and even the region.
The price of Bitcoin
Bitcoin is a volatile asset, therefore, it is difficult to predict its future price. However, this is an important variable since miners are rewarded in bitcoins. You must consider this factor, especially, if you are planning to convert your reward to any other currency in the future.
Mining Pool fees
The mining pool charges a percentage of miners’ earnings as fees. Mining pool fees add to the cost of mining for those who use it.
You can use this data to calculate the approximate potential profit you can expect to make from investing in mining.
That said, there are various approaches to Bitcoin mining you can use depending on your budget. The three common methods are solo mining, mining pools, and cloud mining.
Solo mining requires investing a lot of investment to set up all the required mining tools alone. The method is resource intensive since competition is high and continues to grow among miners. To beat the competition, you must have the best mining resources.
Initially, miners could use CPUs, GPUs, and FPGAs to mine. However, these miners have been outclassed by ASICs.
The best place to start is to calculate the potential profit for investing in a particular type of mining. Since bitcoin is an investment that costs money, you will want to ensure that the type of mining hardware you choose will be profitable.
Solo mining may be a riskier option since it involves a lot of investment yet its profitability changes over the years. The cost of mining increases with the increase in mining difficulty. Additionally, the reward reduces over the years. Therefore, solo mining was much easier and more profitable in 2009 compared to today. Back then you could mine with your CPU and earn 50 bitcoins per block. Some of the major manufacturers of ASICs are Bitmain and Canaan. The prices can be as high as $3000 and more.
In addition to buying the rig, you must also have enough space for the rig. You must also consider the power supply. A steady and cost-effective power supply is suitable.
The next step is to select the Bitcoin mining software. The mining software acts as the bridge to the Bitcoin network and its blockchain. Choosing the right software is relatively easier compared to selecting the right hardware. Some of the popular options are Bitcoin Miner, CGMiner, BTCMiner, and EasyMiner
A more affordable and less risky method to approach Bitcoin mining is through mining pools.
Solo mining is so expensive and riskier if you are a beginner. Even if you buy the best miner out there, you are still at a huge disadvantage compared to professional mining farms
Mining pools involve pooling resources and sharing the profit. Miners group together to form a mining pool and combine their mining power to stand a better chance of beating the competition. The reward generated by mining pools is spread out between the pool members depending on their contribution to the pool. Mining pools give even small miners the chance to join the mining game and stand a chance of earning rewards.
You should consider the size of the pool, the fee charged, and the minimum payment supported. Some of the largest pools out there include F2Pool, BTC.com, AntPool, ViaBTC, SlushPool, and BTC.TOP, BitFurry, and Bitcoin.com.
Cloud mining allows you to mine Bitcoin without buying a physical mining rig. Instead, this method involves renting computing power from a mining company. Miners are paid according to the mining power they own.
Cloud mining may seem a good idea at first, considering that a miner does not have to go through the hassle of buying, setting up, and running a mining rig. However, few cloud mining sites are profitable. The ones that promise huge profits are most likely scams. You must do an elaborate calculation to determine the profitability of cloud mining if you have chosen to take that path. Additionally, you must research and ensure you are not dealing with a Ponzi scheme.