Bitcoin Mining - Everything You Should Know In 2020

Bitcoin has a public ledger which is called the blockchain. The process of mining adds new transactions to this public ledger. Why? Well, Bitcoin users need this process because it means that every transaction is securely confirmed and verified while all the users making use of the Bitcoin network has full access to the blockchain – in other words, the Bitcoin ledger. Mining also helps the network figure out which transactions are fair and legit, eliminating any transactions that try to spend money a second time.

So when someone “mines” Bitcoin they are in fact performing a service to all Bitcoin users because they ensure Bitcoin transactions are legitimate. During the process of mining people who mine Bitcoin will complete a new block which means that the miner gets a reward. In 2018 the return for completing a new block was 12.5 Bitcoin, but the reward gets lower with time.

As you can imagine, mining requires a lot of hard work and patience – you do not get Bitcoin mining results quickly. So there’s an obvious analogy with actual, physical mining of metals like gold. Hence using the word “mining” for the computational tasks that generate new Bitcoin.

Choosing your mining equipment

Mining Bitcoin involves very complex calculations which are very computationally intensive. So, choosing the right hardware kit when you mine Bitcoin is really essential. You need to think about a number of specific characteristics when you choose your Bitcoin mining kit.

Hash rates

Perhaps the key aspect of your mining kit choice is this: the hash rate that your mining hardware can sustain. Hash rate is basically the number of crypto calculations that your mining hardware can perform every second. It’s easy to see why a higher hash rate will help you mine coins more quickly – simply because more calculations per second mean that you solve the crypto math required to mine a coin much more quickly. As a result you can quickly complete a block and get your reward for doing so.

Hash functions work like this: whatever input you insert will always give you the same output. So to find a specific output you have to try as many random inputs as you can – as fast as you can. It makes mining competitive and the miner who can process more inputs than other miners will end up getting rewarded faster. So, again, if you can get hardware with a high hash rate you will have an advantage over other miners which means you get more rewards more quickly.

The rate of measurements for hash rates is MH/sec, which is short for megahashes per second. You can also measure hash rates in terms of GH/sec and TH/sec, standing for giga- and terahashes per second respectively. Bitcoin mining hardware have hash rates which can range from a few hundred MH/sec all the way to 10 TH/sec (or 10,000,000 MH/sec).

Cost of energy

There are costs involved with mining Bitcoin, and it’s not just the physical mining hardware you need to worry about. If you can afford powerful hardware you will quickly find you have another headache: the electricity cost associated with driving that hardware because powerful mining hardware consume a lot of power.

When buying hardware you therefore need a close look at the electricity consumption of the kit – work it out in watts and then see how much it will cost you, so that you don’t get a big surprise when you get your next electricity bill. If you don’t you risk spending all your mining profits on electricity – or indeed face making a big loss.

Hash rate alongside energy consumption is a good way to evaluate mining profits. Compare the hashes you can complete in an hour with the cost of electricity per hour (or per day). An easy way to do this is to divide the hash rate of your kit by the watts consumed. It’ll give you a MH/s per watt rate which can guide you, alongside current electricity costs, to find whether your mining kit will produce a profit.

Don’t forget to include extra costs like the computer hardware that drives mining GPUs when you calculate profits - your PC will also consume power on top of the mining hardware that you have.

Bitcoin mining hardware options

When Bitcoin was just released a wide variety of people paid attention as it was a unique idea that people found very liberal. In any case, Bitcoin was very revolutionary compared to the way transactions were processed before: by centralised banks. This self-governing network was outside the remit of financial institutions, tax authorities and other big organisations because it was completely decentralised.

In these early days of Bitcoin less people knew about the cryptocurrency and fewer people were buying and investing in Bitcoin, so the value of Bitcoin was not as high. The result was that it was easy to mine Bitcoin which meant that there were many miners interested in mining Bitcoin for profit, but they were also interested in Bitcoin because it was such an incredible, novel idea. Back then, mining Bitcoin required the use of basic computing power – even a laptop was enough, or a powerful desktop computer.

Through this process of mining Bitcoin with laptop and desktop computers people started realising that GPUs (graphics cards) were capable of really boosting Bitcoin mining ability. GPUs are well-suited for Bitcoin mining: GPUs consume less power than a computer CPU dedicated to mining and GPUs can mine at 50 to 100 times the rate.

As a result dedicated devices which were custom-designed for mining was introduced to the market. Mining capabilities multiplied and this lead to an interesting development: Bitcoin mining farms which were effectively profit centres – and which led to the development of a more formal industry dedicated to mining Bitcoin.

Over time Bitcoin mining has become very profitable and a lot of serious miners operate very large Bitcion mining farms that generate a lot of money. It’s a mix of hardware involved in these mining farms – including GPUs alongside powerful coolers to keep temperature down. Electricity is a big problem for these operations but in some countries electricity prices are low and this is why mining farms have concentrated in places with cheap electricity.

Unfortunately, it does mean that to mine Bitcoin you are up against very capable mining operations with a lot of capital behind them – it’s basically a competition against big companies around the globe that have a lot of money to spend. There are still countless individual Bitcoin miners too – and they tend to collaborate for profit by joining Bitcoin mining pools.

Choosing a CPU

As much as a CPU is really central to your computer it is not in fact the most important part in a Bitcoin mining rig. Yes, back when Bitcoin just launched you could mine using a CPU alone and you could do it profitably as long as your PC’s CPU had enough power.

Miners worked hard to maximise their profits however so the result is that they tried different types of hardware for mining. They quickly found that CPUs are not the best options for mining Bitcoin. You still need to use a CPU to power your PC that runs the mining rig, but your CPU will take decades to mine a meaningful amount of Bitcoin.

GPUs for mining

There are a lot of different uses for GPUs, or graphics processing units – ranging from playing advanced 3D games through to doing 3D rendering. In fact, the original design remit for GPUs were the ability to calculate the math that allows top-end video games to look as good as they do. However, by coincidence, this also meant that GPUs are excellent tools for performing hashing functions. And, as we know, hashing is key to solving the crypto puzzles that solve blocks of Bitcoin transactions.

GPUs are not cheap, at several hundred dollars each, but there is a huge advantage for GPUs over CPUs when it comes to hashing. A good GPU could easily hash at hundred times the rate of a top-end CPU. This fact led to the rise of what is called a mining rig: a basic computer linked to a large number of GPUs – all dedicated to mining and to mine so as fast as possible. However, some people used these machines in a mixed-use configuration, for example playing 3D games at certain times while mining when they’re not gaming.

However bad news for GPU mining surfaced quickly: today you cannot really mine Bitcoin profitably using GPUs. To cut a long story short, the more powerful mining equipment becomes the more difficult it becomes to mine Bitcoin. The result is that GPUs can no longer effectively mine Bitcoin compared to alternatives – which we’ll talk about below. So, you won’t make your money back in capital and electricity spend if you use a GPU to mine Bitcoin.

FPGAs in Bitcoin mining

GPUs were soon succeeded by something called a field programmable gate array, or FPGA. An integrated circuit, FPGA’s need to be configured after they are built but it does mean that a company which builds mining kit can buy a lot of FPGA and then set these up to be excellent at mining Bitcoin. FPGAs turned out to be a great option for mining Bitcoin and it changed the parameters for Bitcoin mining – removing GPUs from the playing field.

In fact, FPGA mining rigs were the first mining kit which used hardware specifically designed for Bitcoin mining, and which could only be used to mine Bitcoin. In one key development it was quickly found that FPGA’s used a lot less power than GPUs – in fact, for the same hash rate, an FPGA could use less than 20% of the power of a GPU – which means mining operations were a lot more profitable.

What are ASICs?

The final stage in the Bitcoin mining arms race, application-specific integrated circuits or ASICs were chips designed from the ground up to mine Bitcoin. You can’t program an ASIC, it’s functionality is printed into its circuits and in the case of Bitcoin mining rigs ASICs could only be used to mine Bitcoin. Good ASICs could mine at 100 times the rate while using less electricity. At this stage there is no replacement technology for ASICs on the horizon, so ASICs remain the fastest way to mine Bitcoin for the foreseeable future.

Of course, a custom-designed chip will be time consuming to make and fairly expensive. However this expense does come with results – a top of the line miner from a company such as AntMiner can get you to hash rates which are in the terahashes per second range – easily over 10TH/sec. The price? Over a thousand dollars. You get cheaper solutions too but the speed will be less.

Working out mining profitability

Getting your mining profits right is difficult and it does depend on hardware choice which is why mining beginners can find the choice of hardware a bit overwhelming to cope with. Getting your hardware choice right will determine you profits so you need to be able to calculate profitability to cover the cost of the hardware as well as the electricity you are consuming. It’s important that you make this calculation before you spend money on hardware because your hardware can be difficult to resell.

Thankfully you can consult a pre-built calculator to help you – two options include BTC Mining Profit Calculator, which lets you add facts like the price you are paying for your hardware plus the hash rate you are achieving alongside the electricity you consume – it then takes the current price of Bitcoin and tells you whether your investment will reap rewards – or just end up costing you money. Another calculator you can try is the one from Genesis Block.

Choosing mining software

Thought choosing mining hardware will be difficult? You have even more choices to make – this time around the software you use for mining. You don’t need mining software for all types of mining rigs but you probably will – GPUs and FPGAs also need you to make available a computer you can use for mining, which acts as host for Bitcoin’s client plus the mining software you choose to use.

Why a Bitcoin client and mining software? Well, the Bitcoin client connects your miner to the bitcoin network and the mining software is the application which utilises your mining hardware to solve cryptography puzzles in order to solve transaction blocks – which of course is what you are rewarded for.

ASIC system can be pre-configured with software, they could even include a Bitcoin address that’s ready to use. All you need to do is plug your ASIC miner into a socket and get started. Older ASIC rigs however needed separate software to get them going.

Which are the most popular Bitcoin mining software options? We think you should check out one of these five solutions, depending on your exact needs:

  • Bitcoin Miner. It does what it says on the tin and is easy to use while offering a power saving mode as well as support for mining pools. This app is know for its ability to quickly submit shares and it also helps you to generate a profit report. For OS X or Windows.
  • RPC Miner. If you’re a Mac user you will like RPC Miner because it closely integrates with OS X and the APIs in OS X – alongside OS X’s subsystems.
  • CGMiner. Supporting Linux, OS X and Windows, CGMiner comes with extra features including the ability to control fan speed alongside remote control. It detects new blocks on its own thanks to an internal database and supports both CPU and GPU mining, with support for multiple GPUs.
  • BFGMiner. Need something that is designed for ASICs? Consider BFGMiner which is very similar to CGMiner except for the fact that it support ASICS. It also works across all the major PC operating systems.
  • EasyMiner. With useful performance graphs EasyMiner is a great solution if you want support for a range of mining protocols. It can work in either solo or pool mode and is available for Linux and OS X.

Understanding mining pools

The computer resources required to mine Bitcoin has increased to the extent that successfully mining Bitcoin now requires you to compete against organisations with a lot of money, and which can set up big mining farms. So it is hard to mine solo and one of the ways to improve your ability to mine Bitcoin is for you to join a pool of Bitcoin miners.

When pooling your mining efforts you basically give your computing resources to the collective mining effort so that blocks can be found faster, which means rewards are obtained more quickly. These rewards are then split amongst the people who contribute their computing resources in a way that’s proportional to their contribution. Joining a pool can therefore make your mining income more streamlined as you’ll get paid more quickly – even if the individual payments could be small.

It’s easy to join a pool, you sign up just like you would sign up with any other website – by creating an account. You then add a worker – or multiple workers if you have multiple rigs – and attach the workers to your hardware rigs. Keep in mind that pools charge for their services so you could loose between one percent and ten percent of your mining rewards. Some pools charge no money whatsoever.

Can you profitably mine Bitcoin?

The profits you can generate when mining Bitcoin has rapidly changed over the years as Bitcoin itself has become more valuable, while the difficulty of mining Bitcoin has increased exponentially. The early enthusiasts who used CPUs to mine Bitcoin will now no longer be able to make any money out of doing so, instead the game is in the hands of people who operate enterprise-scale mining ventures.

So in essence the easily obtainable Bitcoins were mined long ago so today mining is incredibly hard, like trying to find diamonds. The increasing value and popular appeal of Bitcoin has also drawn a lot of new players into the Bitcoin mining scene which makes the competition for mining new coins even tougher – it means that you simply need more and more powerful computing resources to mine a coin.

Specialised mining gear is now key

It’s not that you can’t mine – it just means that to make a profit you now need fairly specialised Bitcoin mining gear. Individuals trying to mine will often find that they simply spend more on the electricity they use to mine than what they get in return for mining. In part, access to cheap electricity is key to mining Bitcoin successfully today and so is scale – the ability to put together a very large mining operation.

People who mine at home also need to cope with all sorts of issues ranging from the power going out through to hardware that breaks down and getting disconnected from the internet – not to mention crashed in the price of Bitcoin, which happen occasionally. It really is very difficult for people to mine Bitcoin at home and make any money at all.

That doesn’t mean that the mining at home proposition won’t change: ASICs are becoming better and better while the software that handles the hardware is also becoming more capable. In the future all these factors could change so that individuals can again mine Bitcoin at home – which would be a good thing because it supports the decentralised aspect of Bitcoin. In other words, people mining Bitcoin at home prevents all the power from accumulating with a few large players.

What you need to know about Bitcoin cloud mining

There is an alternative to mining Bitcoin using your own equipment. It’s known as cloud mining, and it operates on a principal similar to other cloud services. Instead of owning your own computer equipment you “rent” mining capabilities from someone else. It’s a bit like buying a mining contract and in doing so you will be sharing in the vast computing capabilities of the company you contract with.

Without a doubt Bitcoin cloud mining can be easier than trying to do it with your own hardware because there’s no need to worry about software, internet bandwidth or the cost of electricity. And, of course, you don’t have to pay for the hardware either. All you need is an internet connection and ideally your own Bitcoin wallet to keep your coins locally.

Note though that when you’re outsourcing your mining activity to a cloud mining provider you will take a degree of risk. You hand over almost all control to the cloud mining vendor. That's why choose only reputable cloud mining providers like IQMining.

 

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