How to Mine Bitcoin?
Analogies involving bitcoins and gold are hardly out of place, considering that both resources are limited and make up dreams and competing ambitions of many. Mining a single bitcoin can rob one of thousands of dollars in a single year – if this user is actually lucky enough to get this outcome. The following guide is supposed to be a helping hand for those who want to try their luck at mining bitcoins.
In addition to luck, prospective miners will need to understand that today’s demands of Bitcoin mining are a completely different beast to what this activity required upon its launch in 2009. Back then, it was possible to mine the Bitcoin using a personal computer. Now, with more and more miners joining the race for bitcoins and the market becoming largely saturated, only those ready for substantial initial investments can expect just rewards for descending into a bitcoin mining pit.
Three Basic Bitcoin Mining Philosophies
Going back to the mining basics is helpful, as one of the sharper tools at a beginner miner’s disposal is his/her knowledge of the basic relevant terms, such as “blocks”, “hash rate” etc. The decision on the mining budget really depends on your readiness to stick to one of three dominant approaches to mining:
- Investing a lot into buying your own mining equipment and keeping all the profit to yourself
- Combining mining resources as part of a mining pool
- Using cloud mining resources based on subscription model
The catch with these approaches is the fact that all of them come with a clear cut set of benefits and weaknesses, the importance of which will largely depend on what you are trying to achieve with mining and in what timeframe. So, let’s dive into these options in more detail.
Getting Ready for Solo Bitcoin Mining
Solo mining may be considered a riskier option since its profitability has changed (mostly negatively) over the years, with prices of dedicated hardware experiencing unpredictable intervals of spikes and drops. The same goes for electricity, but your mileage may vary here, depending on the national price levels for this type of energy in your region.
You can start out by looking into Bitcoin mining calculators which will give you an overview of potential profits you can expect to make from investing in a particular type of mining hardware. Available options include CryptoCompare, Crypto Mining Tools, and similar platforms.
These calculators consider the following parameters:
- Hardware Costs
- Hardware Efficiency
- Electricity Costs
- Bitcoin Mining Difficulty
- Network Hash Power
- Bitcoin Price Block Reward
You will be required to supply information on the hash rate and power consumption levels of the mining hardware you consider for purchase, alongside other required information such as electricity costs in your area. The more information you feed into the calculator, the more reliable the resulting assessment will be. Bear in mind that some countries may score better on their investment/gain ratio for bitcoin mining (such as China or Venezuela), so this parameter should be a useful early consideration prior to buying hardware. In any case, it is useful to know that China has been dominating the global mining market based on its cheap electricity.
Getting the Best Mining Rig
Speaking of hardware, the price of bitcoin mining rigs should be next on your to-do list prior to making yourself a miner. The old golden rule applies here, as investing more than you are prepared to lose is usually a bad opening move in this game.
In an era when buying bitcoin on a cryptocurrency exchange seems a more reasonable option for acquiring it, building a personal mining rig requires extensive knowledge about the right sort of hardware required for mining. The history books tell us that CPUs, GPUs, and FPGAs which were initially used for mining are now usually outclassed by application-specific integrated circuits (ASICs) which function as integrated circuits customized specifically for mining. The major manufacturers of these devices include Cannaan, Bitmain, and others, with their products’ average prices ranging from anywhere between USD 1500 to USD 3000 and more.
Going the route of building an independent rig will require you to consider at least some of these points in advance:
- Do you have enough space for a rig and is the environment potentially flammable?
- Which motherboard, GPU, processor, RAM and storage devices hit the sweet spot when it comes to price/performance ratio?
- Do I have adequate power supply hardware which can meet the electricity demands of the mining rig?
Once you have these answers, you can be on the lookout for the bitcoin mining software, which comes in various flavors, yet with a single purpose. While the mining itself is handled by hardware, the mining software is your bridge to the Bitcoin network and its blockchain. Thankfully, compared to hardware and power supply considerations, choosing the right software is arguably easier affair, with popular options including Bitcoin Miner, BTCMiner, CGMiner, EasyMiner, etc.
Mining Benefits, Warts and All
Going solo with bitcoin mining is a daunting prospect in 2019, with its single benefit being the fact that whatever is earned through mining is yours for keeping only. Yet, keeping one’s profits means that initial investments needed in this day and age may require purchasing hundreds of pieces of dedicated mining equipment such as ASICs. This comes with the need to provide electricity for hundreds of rigs as well to amass enough power to compete not only with other individual miners but with those who participate in mining pools as well. This can create additional demands for ventilating and cooling equipment which, guess what, requires additional electricity supply.
Thus, the best option for going solo is making sure you have access to cheap electricity, paired with a favorable climate that does not require industrial-grade coolers and sufficiently deep pockets for initial investments.
Pooling Your Mining Strengths
Joining a mining pool is yet another option for a prospective bitcoin miner, setting itself apart from solo mining by being cheaper and more accessible in general. Mining pools comprise a group of miners who combine their computing and processing power and share profits. There’s usually a fee which needs to be paid by members of such pool but the overall costs of mining a single block are only a fraction of what is required if you do it solo. At the same time, joining pools puts considerably less pressure on a miner in terms of the mining capacity of their rigs, as well as on the need for meeting electricity demands.
Pool members agree to share mined bitcoins among themselves, which makes access to regular payment in BTC a more feasible prospect. Joining a mining pool has several requirements, some of which cover the same grounds as those for solo mining:
- Access to a mining rig
- Functional mining software
- Cooling fans
- Power supply units
- Bitcoin wallet
- Internet connection
In addition to the mining calculators, pools will usually offer access to the dedicated interface allowing users to check how much they manage to mine by entering their wallet addresses on the pool’s website.
Things to Consider When Joining a Pool
All of this comes with the need to pick out the best pool for one’s mining needs. Yet, this can take some consideration, bearing in mind that mining pools differ based on the following criteria:
- Pool size. Pure logic is applied here, as larger pools will have more miners and offer better chances at receiving a reward in BTC. Yet, the gains need to be split among a larger pool of miners, making them potentially smaller but more regular.
- Fees charged. Pools charges fees for providing infrastructure and organizing mining. This usually refers to them taking a cut (a percentage) from the profits you make and this is done automatically. The usual cuts can range from anywhere between 1% and 3%. While going for a pool with lower fees can seem like a no-brainer, one should be careful about those promising zero commission fees to the miners and double check them in advance.
- Minimum payments supported. This refers to the minimum amount of bitcoin that is available for withdrawal by a miner. Beginners are usually advised to pick a pool with a lower minimum payment threshold if they want their endeavor to bear fruit from the outset.
Whatever criteria you apply here, some of the more popular mining pool options include AntPool, Slush Pool, BTC.com, F2Pool, and others. To avoid frauds, doing some research on newer or less established pools prior to joining them is a must and you’d do well to apply some common sense in that case.
How to Mine Bitcoin in the Clouds
The third option at the disposal of bitcoin miners is the use of cloud-based mining platforms. This means buying processing power at a remote data center which will mine BTC on your behalf. This option offers some advantages as you don’t need to invest in expensive equipment in order to mine. Instead of this, you are charged a fee by the data center which reduces your profit but comes with a guaranteed rate of return on the investment. In any case, you are well advised to do some user feedback research before choosing a cloud mining solution to avoid being exposed to fraud.
Many users might actually prefer the cloud mining option to the hassle of building their own rigs, either for solo or pool-based mining. By analogy, you do not have to worry about equipment breakdowns, but you do not get to upgrade it either. Finally, if all of the above seems intimidating enough, bear in mind that this option does not require you to know much about bitcoins and their mining, making cloud-based mining a viable option for absolute beginners in the cryptoverse.