How to Mine Bitcoin in 2022 - Complete Guide
Bitcoin mining is a process where new Bitcoins are added to the network. It’s important as this is how Bitcoin transactions are confirmed, and it helps secure the Bitcoin network.
It involves solving cryptographic problems in order to add the next block on the blockchain, and as a result, the winner is rewarded with BTC. Today, you need specialised equipment to mine successfully, as the competition is high.
Breaking Down Bitcoin Mining
This section will explore what Bitcoin mining is in-depth. Our goal here is to get a clear grasp of what the process entails and understand why miners are essential to the Bitcoin network. Additionally, it will offer tips on how you can mine the cryptocurrency profitably today.
What is Bitcoin Mining?
In a centralised monetary system, the bank acts as the intermediary between two parties who wish to transact. However, Bitcoin was created to serve as a decentralised version of the bank where no single entity has control over transactions. In a centralised system, only the central bank is allowed to update the ledger. Since Bitcoin is decentralised, the role of updating the ledger is left to the network participants. The question Satoshi had to contend with, was how to create a decentralised ledger? How do you give someone the ability to update the ledger without giving them so much power that they become corrupt or negligent in their work?
This is where Bitcoin mining comes in; anyone that wants to update the ledger can, and all they need to do is guess a random number that solves a complex mathematical problem generated by the system. The guessing is done using your computer, and the more powerful your computer is, the more guesses you can make, which increases your chances of winning the right to update the ledger. If you guess right, you earn the right to add the next bunch of verified transactions, known as blocks, on the Bitcoin blockchain - a decentralised public ledger. As a reward, you earn Bitcoin for your endeavour
Why Bitcoin Miners are Important?
Miners are crucial on the Bitcoin network since they help validate transactions, thereby preventing double-spending. Until Bitcoin came around, creating digital money was troublesome; innovators couldn’t figure out how to prevent individuals from duplicating transactions as one can easily do with a digital file. But, this problem was solved by the introduction of the blockchain that allows for timestamping groups of transactions before broadcasting them to all the nodes on the network. Each block should contain a timestamp of the previous block included in its hash. This creates an unchangeable record of how transactions took place. It can be argued that a miners’ role is determining which transactions are legitimate, and which are not; therefore, disregarded. By doing this, miners help to secure the distributed ledger from bad actors.
As mentioned before, this process of validating transactions is both expensive and energy-intensive. Therefore, rewards exist in terms of bitcoins and transaction fees, which serve as an incentive for individual miners to continue mining. By doing this, Nakamoto was able to kill two birds with one stone; keep the distributed ledger updated in a decentralised manner, and introduce new coins on the network.
Bitcoin Mining Limitations
Nakamoto set the supply of Bitcoin at 21 million coins. That’s the number that could ever exist, which, unlike fiat currencies which governments can overprint and devalue, guarantees stability and increased value over time. It’s believed that Nakamoto was able to come up with this large number after making two crucial decisions. The first one was new blocks would be added to the network after 10 minutes, and the second was rewards paid to miners would reduce approximately every four years.
The reduction of the rewards offered is crucial in that it helps combat inflation within the network. Therefore, the amount of coins awarded to miners keeps halving after every 210,000 blocks have been mined, roughly translating to every four years. Initially, the reward was 50 BTC, which dropped to 25 BTC, then 12.5 BTC, and as of last year, 6.25 BTC.
You would imagine more people would want to join mining, some with even superior mining devices to earn maximum rewards. But, Satoshi came up with an ingenious method known as mining difficulty that would ensure only a given number of Bitcoins are added to the network after a given period, which in this case is ten minutes.
The mining difficulty is a self-adjusting process where the more miners join the network, the harder it gets to mine. Conversely, if the number of active miners reduces, the difficulty drops.
Tip to Mine Bitcoin Efficiently for Greater Profits“ Based on our research, there are two ways you can go about this. You can either opt to invest in mining hardware then join a mining pool or purchase a cloud mining service. If you choose the former, ensure you go for a pool that is based in a country where the cost of electricity is cheap and offers steady rewards. If you opt for the latter, still invest time to research the best service providers and consider different factors like reward share and clauses attached to the contract to see if it's the best strategy for you. ”- Basil Kimathi
Technical Aspects of Mining Bitcoin Explained
This section will cover the more technical aspects of Bitcoin mining, including defining terms like hashrate and processing power. It will also explore why a higher hashrate within the Bitcoin network is preferable and the amount needed to mine Bitcoin successfully.
Hashrate Simplified for Bitcoin
What does hashrate mean?
Hashrate is the number of guesses a Bitcoin mining machine can make within a given period. It’s used to measure how much computing power all participants within the Bitcoin network is contributing to Bitcoin mining.
Why is a higher hashrate important?
The higher the hashrate one has, the more bitcoins they are likely to mine. A high hashrate of the entire Bitcoin network means more machines are participating in mining, which makes it harder to mine the coin. The hashrate is also used to measure how healthy the Bitcoin network is; therefore, a higher hashrate is good since it makes the network more secure.
If a bad actor wanted to attack the Bitcoin network, they would have to control at least 51% of the entire hashrate, which would be quite expensive when millions of machines are running. This means that the reward of hacking the Bitcoin network would be much less than the cost of the endeavour.
How is hashrate measured?
There are five units for measuring Hashrate, including Kilohash, Megahash, Gigahash, Terahash, and Petahash. Currently, the most used unit is Terahash (TH/s), representing trillions of Hashes/second. At the start, there were not many machines participating in mining Bitcoin; therefore, using your CPU, which is capable of around 5 MH/s, you could mine some Bitcoins.
But, as more machines joined in, the difficulty went up, and CPUs were replaced with graphics processing cards GPUs, which would produce at least 68 MH/s. Then came FPGAs, which were capable of 800 MH/s before Application Specific Integrated Circuit (ASICs) took over. At the start, a standard ASIC was capable of up to 1.5 TH/s, a far cry from current machines capabilities of up to 110 TH/s.
Processing Power: CPU & GPU
Processing power represents the amount of useful work accomplished by a given computing device. The higher the processing power, the higher the hashrate of a given machine when it comes to Bitcoin mining.
Initially, since there weren’t many people mining BTC and the hashrate was low, it was possible to engage in the venture using a standard multicore CPU successfully. But a year later, in 2010, as more people joined the network, it was discovered that graphics cards, which at the time were predominantly used to play video games, had a higher processing power and would offer better returns. In October 2010, the code for mining Bitcoin using a graphics processing unit (GPU) was released.
Remember, Bitcoin didn’t have any real value at this time, and crypto nerds and hobbyists did the mining. Interestingly, the first person to offer Bitcoin its first valuation was Lazlo Hanyecz, who in May 2010 bought two large pizzas for 10,000 BTC. You can do the math on that.
As the cryptocurrency community grew, so did the number of miners, which pushed the difficulty high.
By June of 2011, field-programmable gate arrays (FPGAs) had become the standard since they used three times less power than a simple GPU setup to accomplish the same task. But, it wasn’t long before more specific mining hardware would hit the market. FPGAs gave way for application-specific integrated circuits (ASICs), and Bitcoin mining went from hobby to industry. While FPGAs required tweaking after one had purchased them, ASICs are created for a specific purpose, and that’s mining cryptocurrency, which explains why they have remained the standard.
Hashrate needed to mine Bitcoin profitably
Today, it’s estimated that it takes about 72,000 gigawatts (72 Terrawatts) to mine a Bitcoin using the average power usage provided by ASIC miners. The current hashrate is around 133.732 Ehash/s each day, which means you need very powerful ASIC machines that are quite efficient with power consumption to successfully accomplish the task.
Pros and Cons of Mining Bitcoin
DIY Bitcoin Mining – How to Get Started
This section will cover how one can get started with Bitcoin mining. It will explore the kind of software required and where you can purchase it. It will also cover the kind of costs you are likely to encounter in this endeavour and how to set up everything and get started.
Best Mining hardware for Bitcoin
Individual Bitcoin mining isn’t as profitable as it was back when cryptocurrencies were starting out. Still, it’s possible to profitably undertake this activity, but you will have to invest in some super mining hardware, which doesn’t come cheaply. The superior your mining hardware, the greater your chance to mine more Bitcoins. Below let’s touch on a few machines you can consider when starting out and on a budget.
The first is Antminer T9+, a device that isn’t only cheap compared to the rest but ideal when you don’t have a big space to set up your operation. It boasts a compact design allowing one to cram many units into a rig farm. And thanks to built-in temperature reducing features, you will be able to save a lot on extraction equipment. It costs around $550 - $600 and can be bought on Amazon or Bitmain’s official website.
If you are starting your journey as a Bitcoin miner, you can consider Avalon6, which is relatively easy to use. It’s not the most profitable compared to the rest since it manages to produce only 3.5 TH/s for the 1050W it consumes. This one should set you back around $650 and can be found on Amazon or Canaan website.
If money isn’t a problem, you can consider Antminer R4, which, just like Avalon6, is excellent for small applications. The fan of this machine has been redesigned to produce less than half the noise other machines produce while running, and it’s quite efficient. This one will cost you around $1,700.
Currently, to access the best machines in the market, you have to spend large sums of money. These machines are absolute beasts and in high demand, which means you have to join a waiting list to access them. One such machine is DragonMint T1, created by Halong Mining.
It uses state of the art chip design (DM8575), which has helped it become the first ASIC to achieve a hash rate of 16 TH/s while consuming just 0.075J/GH. This one should set you back around $2,729. It rivals Bitmain’s Antminer S9, which consumes a little bit more power but is equally as good. The Antminer S9 will cost around $2,767.
By visiting Bitmain’s shop online, you will realise they have even superior machines coming which have already been sold out. These include Antminer T19, which can produce a hashrate of 84 TH/s but will cost you $2,118, Antminer S19 with a hashrate of 95 TH/s priced at $2,767, and Antminer S19 Pro with a hashrate of 110 TH/s and costing around $3,769.
Other Costs to be Considered
With these machines, you have to realise the power supply and other necessary components for setting up are sold separately. Therefore, this means additional costs must be considered. For example, the power supply for Antminer S9 will set you back an additional $150.
Then there is the energy cost depending on where you are based. For the most profit, you should mine in pools based in areas with cheap electricity, like China.
To start mining, you will need a Bitcoin wallet, mining software, and hardware. The wallet will be used to store your rewards, while the mining software is what you will use to communicate between the hardware you use and the Bitcoin network. The software will also communicate with the mining pool if you are part of one.
Then you can join a mining pool or buy a cloud mining service.
Some of the best mining software available include CGMiner, which offers remote interface capabilities, self-detection of new blocks, multi-GPU support, fan speed control, and CPU mining software.
Another popular choice is BTCMiner, which comes supported with FPGA boards for programming and communication and a USB interface. Its open-source, meaning it doesn’t require a license, offers the user the ability to choose the frequency with the highest rate of valid hashes.
Other popular options include EasyMiner, which can run on Windows, Android, and Linux systems; MultiMiner, Bitminer, and RPC Miner, which is compatible with Mac OS.
When joining a mining pool, your decision will be based on several factors. You will have to consider the size of the pool. The bigger the pool, the higher the chance of winning rewards, but it also means you will have lower payouts. You can also opt for pools that focus on a single coin or multiple coins based on the network’s hashrate and what coin seems profitable at a given period. Some popular mining pools based on strength and market share include F2Pool, Poolin, BTC.com, Huobi.pool, AntPool, ViaBTC, and Slush.
Mining pools combine the hashing power of all the machines on the network to increase their chances of winning rewards. Mining pools or services present the only viable way to mine Bitcoin today profitably for individuals.
You can opt to join a mining pool where you have to invest in mining hardware and get a share of the rewards, or you can opt for cloud mining services where you rent mining power and get rewarded.
Various mining pools will pay differently. Some will pay per share, which is the most straightforward payout scheme available. The good thing about this payout scheme is that it guarantees the miner gets paid whether the pool wins rewards or not. The pay here will depend on the number of shares you hold, which is determined by your hashing power.
There is the full pay per share, which is almost similar to pay per share, except that transaction fees will also be added on top of the block rewards.
Another payment scheme is pay per last N shares, which is a bit complicated and shifts the risk to the pool members but offers more rewards. Here members are only paid once the block is found and doesn’t include transaction fees.
The process of joining a mining pool is simple. For example, if you wanted to join Antpool, you have to acquire mining hardware, download mining software, and then visit the pool’s official website and sign up.
But, if you find hardware investment and having to oversee the mining operation too much to handle, there is another way you can participate in Bitcoin mining and still get rewarded. You can opt for cloud mining services where you buy contracts, and someone else takes care of the mining for you.
However, you have to note that this is a high-risk investment since when purchasing a contract, you have to sign a clause that can see your account closed if the price of Bitcoin drops and your account isn’t profitable for a given period.
Some popular cloud mining platforms include Bitcoin Pool, which is owned by Bitcoin.com and offers some of the most competitive cloud mining services. The set up is easy, and you can keep track of your account using a mobile device. But, the plans don’t come cheaply. A six-month contract will cost around $5,000 upfront with a $15 daily fee. Then there is a one year contract that will cost around $10,000 with a $15 daily fee and a two-year contract where you will part with about $13,000 upfront with a $15 daily fee.
But you should know that your contract will end if the total revenue from the past 30 days is less than the total daily fees for the same period.
Other popular platforms include Hashnest, Hashflare, Hashing24, and Eobot.
Where to Save my Coins After Mining?
The mined coins must be stored in a secure wallet if you don’t want to risk losing them. Bitcoin is highly valuable as its price can tell, and many investors who buy Bitcoin believe the price will grow to phenomenal heights. When it comes to wallets, there are plenty, as you will see from our recommendations. Hardware wallets are the best for storing large amounts of coins, which you don’t intend to use any time soon. If you want to trade or buy things using the coins, you can keep them on software wallets that are easily accessible.