As Bitcoin’s price has skyrocketed in recent years, Bitcoin mining seems all the more lucrative and exciting. Like prospectors mining for gold, it’s easy to assume that Bitcoin mining involves searching for new cryptocurrency tokens, with the enticing possibility of striking it rich in the process. In reality, mining for Bitcoin is more complicated than that, although there is still the chance to make money with the proper tools. Below, we’ll take a close look at the basics of Bitcoin mining for beginners.
Overview for Fast Readers
- Bitcoin miners earn rewards for verifying groups of Bitcoin transactions called blocks.
- In order to verify a block of transactions, tools including a Bitcoin wallet, a cryptocurrency exchange account, an ASIC miner, and mining software are required.
- Miners generate complex strings of characters known as hashes; if a miner generates a hash meeting certain requirements, the hash is accepted, the block is added to the blockchain, and the miner receives a reward of Bitcoin.
- The amount of Bitcoin rewarded for each successful block is halved every 210,000 blocks. The last halving, to 6.25 BTC per block, occurred in May of 2020.
- Mining is expensive due to hardware and electricity costs, and individual miners stand very little chance of success. Many miners organize into mining pools in order to share computing resources, although they must also divide up any rewards generated as well.
Bitcoin mining is one of three primary ways of gaining access to Bitcoins, with the other two including buying coins on a cryptocurrency exchange like DXone and exchanging BTC for services or goods. “Mining” is a bit of a misleading term in this case, and it might be more helpful to think of the process as recording and verifying Bitcoin transaction records rather than finding or creating new coins out of thin air. Bitcoin miners are independent auditors of the entire Bitcoin ecosystem who receive small rewards of Bitcoin for using their computer processing power.
Powerful computers using specialized mining software are necessary to mine for Bitcoin. These computers solve complex computational problems in order to verify that transactions involving Bitcoin are legitimate and that the same Bitcoins are not being spent more than once. When a group of transaction records equal to roughly 1 megabyte, known as a block, is verified by miners, that block becomes part of the permanent public ledger of the Bitcoin network known as the blockchain. In the process, Bitcoin miners not only help to make the network more secure, but they also facilitate the overall circulation of Bitcoin as they are rewarded with newly-issued Bitcoin for their efforts.
How do you mine for Bitcoin?
In theory, mining for Bitcoin requires only a few pieces of software and mining hardware. In actuality, as we’ll see below, in order to stand any chance to make money by mining for Bitcoin, essentially every independent miner needs much more than that basic equipment. The must-haves for Bitcoin mining include:
- Bitcoin wallet
- Account on a cryptocurrency exchange
- Application-Specific Integrated Circuit (ASIC) Bitcoin miner hardware
- Bitcoin mining software
A bitcoin wallet is either a physical or a digital device which securely holds a private key that is used to access Bitcoin associated with that wallet. A wallet is necessary not only for Bitcoin mining but also in order to conduct any transactions in Bitcoin as well.
A cryptocurrency exchange provides the most convenient way to buy, sell, and trade Bitcoin, other cryptocurrencies, and fiat currencies. While it is not strictly necessary for Bitcoin mining, an account on an exchange will be needed in order to conduct transactions with the crypto rewards you earn.
An ASIC miner can be one of the more confusing aspects of Bitcoin mining, but its purpose is very simple: it is essentially a computer that specializes exclusively in solving the computational puzzles needed to verify Bitcoin transactions. Because these tools are so efficient at solving these puzzles, other CPUs, GPUs, and FPGAs are generally considered ineffective as Bitcoin mining hardware.
Finally, Bitcoin mining software is how you can connect the work that your ASIC miner is doing with the broader Bitcoin network.
How long does it take to mine 1 Bitcoin?
How long will it take to mine a Bitcoin? This seems like a fairly straightforward question and a useful one for anyone who is interested in becoming a Bitcoin miner. However, there’s actually not an easy answer, and in fact it’s probably easier to think about mining in a different way.
The question of how long it takes to mine Bitcoin is complicated because the answer changes over time. One new block of verified Bitcoin transactions is completed roughly every 10 minutes, and one lucky miner (or group of miners) will claim the reward for each block. So, in one sense, Bitcoin rewards are given out several times per hour. However, the reward is reduced by a factor of two every 210,000 blocks, which happens about every four years or so in a process known as halving. The most recent halving took place in May of 2020 and reduced the reward given out for each block from 12.5 BTC to 6.25 BTC. At current Bitcoin prices as of December 2020, the reward for successfully verifying a block is worth well over $100,000, but keep in mind that only one miner or group of miners working together can claim the reward for each block.
Halving takes place as a means of controlling the supply of Bitcoin, and the process will continue every 210,000 blocks verified until the final portion of a Bitcoin is successfully mined, likely around the year 2140.
How Bitcoin Mining Actually Works
Bitcoin miners are all working to verify a block of Bitcoin transactions in order to earn a reward. But besides just verifying the transactions themselves, the miners have to also be the first to do so in order to be paid. This concept is known as proof of work and is related to the important concept of hashes.
A hash is a long string of characters which are generated by inputting a particular set of data into a complex equation known as a hash function. The reason why a hash is so useful for verifying Bitcoin transactions is that any change, even an incredibly small one, to the input data will yield a completely different hash. This makes hashes an excellent way to check that the input data has not been tampered with or altered by outside forces such as hackers.
In the Bitcoin mining process, the “work” that miners must prove they have done in order to earn a reward is represented by the miner generating a hash that meets the Bitcoin network’s requirement: in this case, meaning a hash that is “lower” or smaller than a target hash set by the network. Bitcoin miners plug a multitude of slightly varied sets of inputs into the hash function in the hopes of generating a hash that is lower than the target. As soon as a miner succeeds in this process, the successful hash is shared across the Bitcoin network, the block is verified to the blockchain, and the miner receives the pre-determined reward. Then the whole process starts over again with the next block.
In order to ensure that blocks are verified about every 10 minutes, the Bitcoin network is set up to adjust the difficulty of solving a hash problem. The network may make it more difficult for miners to solve a hash when there is additional computing power being put toward mining. To do so, the network sets a smaller target hash, meaning that more of the hashes generated will be too large and thus disqualified.
Does it make sense for you to mine bitcoin?
If the above description of Bitcoin mining makes it seem like the process is largely based on luck, that’s not incorrect! Any miner could be the lucky one to find a successful hash and thus win the reward for a particular block. However, just as someone playing the lottery has more chances to win when he buys more lottery tickets, operations running huge sets of Bitcoin miners called Bitcoin mining farms have that many more chances of finding a winning hash. It’s nearly impossible for a single Bitcoin miner operating one rig to see success at this point.
What is the solution? You can set up a major mining operation if you’re fortunate enough to have the resources to do so (due to costs of electricity and concerns about energy consumption, many of these farms are located in remote regions of Russia, China, Iceland, and other countries). Or you can partner with other miners to combine your resources in what is known as a mining pool. Mining pools bring together lots of computing power from many individuals, including remotely through a process known as cloud mining. The benefit to joining a mining pool is that your pool is significantly more likely to successfully verify a block than you are on your own. However, the drawback is that, if your pool does verify a block, you’ll have to split the reward with hundreds or thousands of other participants.
Is bitcoin mining legal in your country?
One other important consideration to keep in mind before you buy Bitcoin mining equipment and join a mining pool is the legality of Bitcoin mining in your country. While Bitcoin mining is legal in most parts of the world, mining and/or owning Bitcoin may be illegal where you are. Be sure to check your local laws before beginning this process!
Mining is one of the most intriguing and potentially confusing aspects of the entire cryptocurrency industry. Many other cryptocurrencies are generated through mining as well, although Bitcoin remains the most popular and well-known cryptocurrency among miners. As we’ve laid out in this introduction, Bitcoin mining is a complicated process, a crucial component of the growth and maintenance of the Bitcoin ecosystem, and an endeavor that is potentially, although by no means necessarily, lucrative.