Bitcoin mining is a competitive race that rewarded early adopters the most. If you mined bitcoins in 2011, for example, your reward for completing a block was 50 bitcoins. On top of that, you could mine bitcoins with a normal computer. In 2018, cryptocurrency mining is a different race. There are so many cryptocurrencies to mine and so much to learn.
The Mining Concept
The basic concept of mining bitcoins has not changed. Miners still verify bitcoin transactions and add them to the blockchain. A block represents a group of bitcoin transaction. Bitcoin still uses a proof of work mining algorithm. This means that miners compete to solve complex math puzzles before they earn the right to verify a transaction.
What has changed?
It is nearly a decade since Satoshi Nakamoto launched bitcoin in 2009. A lot has changed to the mining aspect of the cryptocurrency. For starters, the reward for validating blocks of bitcoin transactions is only 12.5 bitcoins, down from an initial 50 bitcoins. The reward was 25 bitcoins between 2012 and 2016. The current blockchain will be halved again in 2020, meaning the block reward will only be 6.25 bitcoins. Learn more about bitcoin’s profitability in this bitcoin mining guide.
Mining any cryptocurrency nowadays is an investment, unless you want to be a hobbyist. Mining bitcoins using either CPU units or GPU units is no longer an option as well. These machines don’t have enough computing speed to solve bitcoin mining algorithms for a professional miner.
If you are seriously considering joining the race to mine coins, the best option is to purchase the more expensive mining rigs known as ASIC machines. ASICs contain specialized chips for mining bitcoins, a cooling fan, a power source and a mining software program. The machines are built to solve the complex math puzzles needed to verify a bitcoin transaction.
Each ASIC machine has a specific computing speed measured in hash rates per second. The lowest hash rate is one hash per second. A 1000 hash rate per second machine is abbreviated as KH/s. More powerful machines run:
- MH/s = millions of hashes per second
- GH/s = billions of hashes per second.
- TH/s = trillions of hashes per second.
- PH/s = quadrillions of hashes per second.
The higher the hashes per second a mining rig can solve, the faster it will verify bitcoin transactions. However, there are several other issues that affect your ability to make money mining bitcoins.
Mining difficulty refers to the difficulty of math puzzles a mining rig must solve before earning the right to verify a bitcoin transaction. Bitcoin’s blockchain adjusts the mining difficulty to ensure that blocks are only completed after 10 minutes or thereabouts. Generally, mining difficulty auto adjusts after 2016 blocks.
When the total number of hash rates increase, the mining difficulty increases. If the hash rates decrease, the mining difficulty lowers.
A lot of power is consumed when mining bitcoins. Bitcoin mining machines don’t have a strategic way of solving the mining algorithms. Instead, they guess the right block from a series of complex puzzles. Before a mining rig can identify the right bitcoin transaction, they usually have consumed a lot of power.
Power is measured in watts or kilowatts (1000 watts). When mining cryptocurrencies; power is measured in kilowatts per every hash rate solved. Every mining rig consumes a specific amount of power. A good mining rig should have a fast hash computing speed and a tolerable power consumption rate. This chart compares how different ASIC machines fare in energy consumption.
These days bitcoin miners work together to complete blocks. Mining alone is still possible, but it would take ages to complete a block and earn a reward. A mining pool, therefore, is a collection of miners who pull their machines’ computing power to complete bitcoin blocks faster.
A mining pool often charges members subscription fees. Miners share block rewards depending on the computing power of their mining equipment. The benefits of joining a mining pool include:
- Miners enjoy a stable source of income.
- You earn more money working in a pool compared to mining solo
- The potential expenses are much lower since the rewards are higher.
There are also drawbacks to mining pools. Some are scams. Some have unfair reward structures where miners with relatively low power rigs pay high fees and earn too little.
For people who don’t want the hassle of buying an expensive mining rig and deal with its maintenance, cloud mining is an option. Generally, cloud mining companies purchase the equipment and do the mining for you. In exchange, you buy a contract determined by a rig’s computing speed. The mining company pays you a portion of the profits they make mining bitcoins.
Most cloud mining companies are scams, but there are a few legitimate options. The contracts generally last a year and the cloud mining company may end your contract if it’s not profitable to mine bitcoins using the computing speed you paid for.
Mining pools will generally ask for your bitcoin address before allowing you to join them. You can use an existing bitcoin wallet or look for a new wallet. A bitcoin wallet can be as simple as a mobile wallet or a program you can download on your personal computer. You can also buy a physical wallet to enjoy their advanced security. Each wallet generates a unique address and has two special keys that enable you to send and receive coins.
Should you Mine Bitcoins in 2018?
Bitcoin mining is still a big business in 2018. Highly powerful mining rigs are expected to be launched this year. More cloud mining companies are expected to launch. However, keep in mind the following:
- The upfront costs of setting up a mining rig may be higher than the returns
- Mining bitcoins is extremely power-consuming.
- The mining difficulty keeps on changing and this may affect you negatively.
- Bitcoin prices fluctuate often
Although mining bitcoins is not as profitable as it was 7 years ago, it’s still profitable. Some people earn a living by mining bitcoins. Some only mine as a hobby or as a part-time job. Research widely to compare the costs incurred and the benefits of mining before you make any decision.