Bitcoin Mining Basics & Why You Might Not Stand A Chance

Ah the wonderful world of Bitcoin. Most people still don’t quite understand what Bitcoin is, they just know that it’s some kind of digital currency that goes way up, and way down, and is thus, too risky. Of course then there’s all those people who took a risk and ended-up way ahead, and like any risk, many more who ended-up way behind.

The big fluctuations in Bitcoin can making trading the virtual currency incredibly volatile, and that’s where mining comes in. The first thing you should probably know about Bitcoin Mining is that you probably don’t know the first thing about it. That’s okay, I’ll explain very quickly and then tell you how to get started (and why you might not want to start at all).

What is Bitcoin Mining?

The good people at Bitcoin need as much processing power as they can get to keep Bitcoin rocking and rolling. If you are willing to donate some of your processing power to essentially solving very hard math problems, they will reward you with Bitcoins, small fractions of Bitcoins but they can add up. (If you want a more detail description you can read it here)

Here’s the catch. Your home computer isn’t going to cut it so you’ll probably have to shell out about $5,000 – $10,000 to buy a Bitcoin Mining rig. Sounds intense, well they are, and you need a pretty badass rig to make any money in the Bitcoin mining world.

Why you might not stand a chance

In order to really getting your mining power up there you need to spend a good chunk of change, like I said above, be prepare to spend between $5,000 – $10,000. Now here’s the catch, that super expensive equipment you just bought is literally dropping in value and meaningful power, by the week. Fast forward to a year from now and you’ll need to spend another $5,000 – $10,000 on a new rig.

Unless you really know what you’re doing you’ll end-up spending a lot of time and money building your rig and getting it running just to break even at the end of the year. Bitcoin is getting more and more demanding for the type of processing horsepower that they need which means that you’ll always be struggling to keep up.

The result is that even after spending $10,000 on a killer Bitcoin mining rig you might find-out that it will just break even in time for you to buy a new one. That’s why you might not stand a chance but if you do your research and really know what you’re doing, like most things in life, you can make it happen. Just know the massive risk you are taking.

Still want to do it? Okay you’re crazy but heck, crazy people get rich all the time off of stupid things most people are too afraid to try!

How can you get started mining Bitcoin?

Buy a mining rig – this is where your investment comes in, think of it as a seed investment in a startup that’s probably not going to take off so only spend money you’re okay losing. Butterfly Labs has some cool rigs as does Avalon, both have options to save some money but know that the more you save, the less Bitcoin’s you’ll be making each day. Join a mining pool – to effectively mine you need to join a pool, I won’t go into massive detail here just know that it’s essentially a group of people that have everything setup so you can just hop in and start mining. You can see a comparison of Bitcoin mining pools here. Setup your rig and install the mining software – every setup is a bit different but your mining pool can recommend the best software to work with them. You don’t need to be a coding guru to get things rocking but you will need to shell out the cash for a good rig. Mine away – you’re up and running mining away. Keep close tabs on your electricity bill which will be going up now that you’re running a computer that’s doing intense computations all day and night. Make sure it’s not costing you more money in electricity and equipment than you’ll make money otherwise you may have found yourself a new hobby, not an investment strategy.

Are any of you making money mining Bitcoins? If so it would be great for you to share your experiences below. Comment and let your voice be heard!

Photo Credit: brendanlim via Compfight cc